AmpliPhi Biosciences Corp (Form: 10-Q, Received: 11/16/2015 17:48:10)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________ to _______________________

Commission file number: 001-37544

AMPLIPHI BIOSCIENCES CORPORATION
(Exact name of registrant as specified in its charter)

Washington (State or other jurisdiction of incorporation or organization)	91-1549568 I.R.S. Employer Identification Number)

800 East Leigh Street, Suite 209 Richmond, Virginia	23219 (Zip Code)
(Address of principal executive offices)

Registrant’s telephone number, including area code: (804) 827-2524

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company as defined in Rule 12b-2 of the Exchange Act. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a small reporting company)	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

The number of shares of the Registrant’s Public Common Stock outstanding at November 10, 2015 was 5,883,503.

TABLE OF CONTENTS

		Page

PART I - FINANCIAL INFORMATION		3

Item 1.	Financial Statements (unaudited)

	Consolidated Balance Sheets	3

	Consolidated Statements of Operations	4

	Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)	5

	Consolidated Statements of Cash Flows	6

	Condensed Notes to Consolidated Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17

PART II. OTHER INFORMATION		20

Item 1.	Legal Proceedings	20

Item 1A.	Risk Factors	21

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33

Item 3.	Defaults upon Senior Securities	33

Item 4.	Mine Safety Disclosures	33

Item 5.	Other Information	33

Item 6.	Exhibits	33

SIGNATURES		34

AmpliPhi Biosciences Corporation

Consolidated Balance Sheets

	September 30, 2015			December 31, 2014
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	11,737,000		$	6,581,000
Accounts receivable		40,000			100,000
Prepaid expenses and other current assets		785,000			339,000
Total current assets		12,562,000			7,020,000
Property and equipment, net		1,162,000			1,220,000
In process research and development		12,446,000			12,446,000
Acquired patents, net		346,000			369,000
Goodwill		7,562,000			7,562,000
Total assets	$	34,078,000		$	28,617,000

Liabilities, Series B redeemable convertible preferred stock and stockholders’ equity
Current liabilities
Accounts payable, accrued expenses and other	$	1,153,000		$	1,167,000
Deferred revenue		247,000			244,000
Accrued severance		491,000			457,000
Dividends payable		368,000			-
Total current liabilities		2,259,000			1,868,000
Series B preferred stock derivative liability		2,127,000			12,320,000
Warrant liability		10,000			5,826,000
Accrued severance		-			98,000
Deferred tax liability		3,078,000			3,078,000
Total liabilities		7,474,000			23,190,000

Series B redeemable convertible preferred stock
$0.01 par value, 9,357,935 shares authorized at September 30, 2015 and December 31, 2014, 7,527,853 shares issued and outstanding at September 30, 2015 and 8,671,040 shares issued and outstanding at December 31, 2014 (liquidation preference of $13,068,000 and $14,042,000 at September 30, 2015 and December 31, 2014, respectively)		10,941,000			1,990,000

Stockholders’ equity
Common stock, $0.01 par value, 670,000,000 shares authorized at September 30, 2015 and 445,000,000 shares authorized at December 31, 2014, 5,883,503 shares issued and outstanding at September 30, 2015 and 3,983,182 shares issued and outstanding December 31, 2014		59,000			40,000
Additional paid-in capital		375,895,000			365,403,000
Accumulated deficit		(360,291,000	)		(362,006,000	)
Total stockholders’ equity		15,663,000			3,437,000
Total liabilities, Series B redeemable convertible preferred stock and stockholders’ equity	$	34,078,000		$	28,617,000

See accompanying condensed notes to consolidated financial statements.

AmpliPhi Biosciences Corporation

Consolidated Statements of Operations

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenue	$	143,000		$	103,000		$	347,000		$	308,000
Operating expenses
Research and development		728,000			1,793,000			2,777,000			4,692,000
General and administrative		1,554,000			1,701,000			4,568,000			5,289,000
Severance expense		289,000			1,840,000			289,000			1,840,000
Total operating expenses		2,571,000			5,334,000			7,634,000			11,821,000
Loss from operations		(2,428,000	)		(5,231,000	)		(7,287,000	)		(11,513,000	)
Other income (expense)
Change in fair value of warrant liability		693,000			7,079,000			607,000			9,245,000
Change in fair value of Series B preferred stock derivative liability		7,045,000			19,359,000			8,697,000			26,041,000
Other income (expense)		129,000			-			(302,000	)		-
Total other income		7,867,000			26,438,000			9,002,000			35,286,000
Net income		5,439,000			21,207,000			1,715,000			23,773,000
Accretion of Series B redeemable convertible preferred stock		(7,163,000	)		(323,000	)		(9,329,000	)		(955,000	)
Net (loss) income attributable to common stockholders	$	(1,724,000	)	$	20,884,000		$	(7,614,000	)	$	22,818,000
Per share information:
Net (loss) income per share of common stock - basic	$	(0.30	)	$	5.58		$	(1.45	)	$	6.19
Weighted average number of shares of common stock outstanding - basic		5,813,063			3,743,182			5,247,508			3,688,903
Net (loss) income per share of common stock - diluted	$	(0.30	)	$	3.30		$	(1.45	)	$	3.53
Weighted average number of shares of common stock outstanding - diluted		5,813,063			6,319,802			5,247,508			6,472,093

See accompanying condensed notes to consolidated financial statements.

AmpliPhi Biosciences Corporation

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

	Redeemable Convertible
	Preferred Stock						Stockholders' Equity (Deficit)
											Additional						Total
	Series B						Common Stock				Paid-			Accumulated			Stockholders'
	Shares			Amount			Shares		Amount		in Capital			Deficit			Equity (Deficit)

Balances, December 31, 2013		8,859,978		$	707,000			3,650,711	$	36,000	$	362,454,000		$	(385,115,000	)	$	(22,625,000	)
Net income		-			-			-		-		-			23,109,000			23,109,000
Accretion of dividends on Series B redeemable convertible preferred stock		-			1,285,000			-		-		(1,285,000	)		-			(1,285,000	)
Warrants exercised		-			-			54,683		1,000		1,594,000			-			1,595,000
Conversion of Series B redeemable convertible preferred stock to common stock		(188,938	)		(2,000	)		37,788		1,000		706,000			-			707,000
Stock-based compensation		-			-			-		-		775,000			-			775,000
Stock-based compensation - severance		-			-			-		-		1,161,000			-			1,161,000
Shares released from escrow		-			-			240,000		2,000		(2,000	)		-			-
Balances, December 31, 2014		8,671,040			1,990,000			3,983,182		40,000		365,403,000			(362,006,000	)		3,437,000
Net income		-			-			-		-		-			1,715,000			1,715,000
Accretion of dividends on Series B redeemable convertible preferred stock		-			992,000			-		-		(992,000	)		-			(992,000	)
Amount reclassified to Series B redeemable convertible stock to accrete to its redemption value		-			8,337,000			-		-		(8,337,000	)		-			(8,337,000	)
Conversion of Series B redeemable convertible preferred stock to common stock		(1,143,187	)		(378,000	)		228,637		2,000		1,504,000			-			1,506,000
Common stock issued in March 2015 financing, net of fair value of warrants issued		-			-			1,575,758		16,000		8,250,000			-			8,266,000
Warrants exercised		-			-			56,645		1,000		1,072,000			-			1,073,000
Warrants reclassified from liabilities to equity due to amendment of warrants		-			-			-		-		5,462,000			-			5,462,000
Warrants reclassified from liabilities to equity due to increase in authorized shares		-			-			-		-		3,280,000			-			3,280,000
Exercise of common stock options and other		-			-			39,281		-		-			-			-
Stock-based compensation		-			-			-		-		249,000			-			249,000
Stock-based compensation - severance		-			-			-		-		4,000			-			4,000
Balances, September 30, 2015 (Unaudited)		7,527,853		$	10,941,000			5,883,503	$	59,000	$	375,895,000		$	(360,291,000	)	$	15,663,000

See accompanying condensed notes to consolidated financial statements.

AmpliPhi Biosciences Corporation

Consolidated Statement of Cash Flows

	Nine Months Ended September 30,
	2015			2014
	(Unaudited)			(Unaudited)
Operating activities:
Net income	$	1,715,000		$	23,773,000
Adjustments required to reconcile net income to net cash used in operating activities:
Change in fair value of warrant liability		(607,000	)		(9,245,000	)
Change in fair value of Series B preferred stock derivative liability		(8,697,000	)		(26,041,000	)
Gain on re-valuation of liquidated damages liability		(120,000	)		-
Warrants issued to placement agents		213,000			-
Amortization of patents		23,000			23,000
Depreciation		217,000			59,000
Stock-based compensation		249,000			714,000
Stock-based compensation - severance		4,000			1,161,000
Changes in operating assets and liabilities:
Accounts receivable		60,000			(19,000	)
Accounts payable, accrued expenses, deferred revenue and other		(11,000	)		(305,000	)
Accrued severance		(64,000	)		659,000
Prepaid expenses and other current assets		(446,000	)		(151,000	)
Net cash used in operating activities		(7,464,000	)		(9,372,000	)
Investing activities:
Purchases of property and equipment		(160,000	)		(1,197,000	)
Net cash used in investing activities		(160,000	)		(1,197,000	)
Financing activities:
Proceeds from warrant exercises		396,000			-
Proceeds from issuance of common stock, net		12,384,000			-
Net cash provided by financing activities		12,780,000			-
Net increase (decrease) in cash and cash equivalents		5,156,000			(10,569,000	)
Cash and cash equivalents, beginning of period		6,581,000			20,355,000
Cash and cash equivalents, end of period	$	11,737,000		$	9,786,000
Supplemental schedule of non-cash financing activities:
Accretion of Series B redeemable convertible preferred stock	$	9,329,000		$	955,000
Fair value of warrant liability upon issuance		4,210,000			-

See accompanying condensed notes to consolidated financial statements.

AmpliPhi Biosciences Corporation

Condensed Notes to Consolidated Financial Statements

September 30, 2015
(Unaudited)

1. Organization and Description of the Business

AmpliPhi Biosciences Corporation (the “Company”) was incorporated in the state of Washington in 1989 under the name Targeted Genetics Corporation. In February 2011, Targeted Genetics Corporation changed its name to AmpliPhi Biosciences Corporation. The Company is dedicated to developing novel antibacterial therapies called bacteriophage (phage). Phages are naturally occurring viruses that preferentially target and kill their bacterial targets.

As a development stage company, it has incurred net losses since its inception, has negative operating cash flows, and had an accumulated deficit of $360.3 million and $362.0 million as of September 30, 2015 and December 31, 2014, respectively. The Company completed a $13.0 million private placement of its common stock in March 2015, which provided net proceeds of approximately $12.4 million after commissions to placement agents. In the opinion of management, the Company has resources sufficient to fund its planned operations through the third quarter of 2016. This estimate is based on the Company’s current product development plans, projected staffing expenses, working capital requirements, and capital expenditure plans.

2. Significant Accounting Policies

The Company’s significant accounting policies are described in Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. Since the date of those financial statements, there have been no material changes to the Company’s significant accounting policies. The interim consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries Biocontrol Limited, Ampliphi d.o.o., and AmpliPhi Australia Pty Ltd. All significant intercompany accounts and transactions have been eliminated.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company should be read in conjunction with the audited financial statements and notes thereto as of and for the year ended December 31, 2014 included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (SEC). The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) for interim financial statements and in accordance with the instructions to Form 10-Q. Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted account principles as found in the Accounting Standards Codification (ASC) and Accounting Standards Update (ASU) of the Financial Accounting Standards Board (FASB).

In the opinion of management, the accompanying financial statements reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2015 and the results of its operations for the three and nine months ended September 30, 2015 and 2014. Interim results are not necessarily indicative of results for the full year or any future period.

Reverse Stock Split

On August 3, 2015, the Company filed Articles of Amendment to Amended and Restated Articles of Incorporation with the Secretary of State of the State of Washington that effected a 1-for-50 (1:50) reverse stock split of its common stock, par value $0.01 per share, effective August 7, 2015. On August 3, 2015, the Company increased its authorized common stock, from 445,000,000 to 670,000,000 shares. The par value of its common stock was unchanged at $0.01 per share, post-split. All warrant, stock option, and per share information in the consolidated financial statements gives retroactive effect to the 1-for-50 reverse stock split that was effected on August 7, 2015.

Use of Estimates

Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. This process may result in actual results differing materially from those estimated amounts used in the preparation of the financial statements if these results differ from historical experience, or other assumptions do not turn out to be substantially accurate, even if such assumptions are reasonable when made. In preparing these financial statements, management used significant estimates in the following areas, among others: the determination of the fair value of stock-based awards, the fair value of liability-classified preferred stock derivatives, the fair value of liability-classified warrants, the valuation of long-lived assets, including in-process research and development (IPR&D), patents and goodwill, accrued expenses and the recoverability of the Company's net deferred tax assets and related valuation allowance.

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of deposits with commercial banks and financial institutions. Cash equivalents include short-term investments that have a maturity at the time of purchase of three months or less, are readily convertible into cash and have an insignificant level of valuation risk attributable to potential changes in interest rates. Cash equivalents are recorded at cost plus accrued interest, which approximates fair market value.

Accounts Receivable

Accounts receivable amounts are stated at their face amounts less any allowance. Provisions for doubtful accounts are estimated based on an assessment of the probable collection from specific customer accounts and other known factors. As of September 30, 2015 and December 31, 2014, management determined no allowance for doubtful accounts was required.

In-Process Research & Development and Goodwill

In-process research & development (IPR&D) assets represent capitalized incomplete research projects that the Company acquired through business combinations. Such assets are initially measured at their acquisition date fair values. The fair value of the research projects is recorded as intangible assets on the consolidated balance sheet rather than expensed regardless of whether these assets have an alternative future use. The amounts capitalized are being accounted for as indefinite-lived intangible assets, subject to impairment testing until completion or abandonment of research and development efforts associated with the projects. Upon successful completion of each project, the Company will make a determination as to the then remaining useful life of the intangible asset and begin amortization.

Costs of investments in purchased companies in excess of the underlying fair value of net assets at the date of acquisition are recorded as goodwill and assessed annually for impairment. If considered impaired, goodwill will be written down to fair value and a corresponding impairment loss recognized.

We review the carrying value of IPR&D and goodwill for potential impairment on an annual basis and at any time that events or business conditions indicate that it may be impaired. As permitted under Accounting Standards Codification Topic 350 (ASC 350), through December 31, 2014, we have elected to base our assessment of potential impairment on qualitative factors. Based on our assessment, IPR&D and goodwill were not impaired as of December 31, 2014.

Warrant and Preferred Shares Conversion Feature Liability

The Company accounts for warrant and preferred share features with anti-dilution adjustment provisions under the applicable accounting guidance which requires the warrant and the preferred share feature to be recorded as a liability and adjusted to fair value at each reporting period.

Foreign Currency Translations and Transactions

The functional currency of our wholly-owned subsidiaries is the U.S. dollar.

Other Comprehensive Income (Loss)

The Company recorded no comprehensive income other than net income for the periods reported.

Recent Accounting Pronouncements

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern , which defines management's responsibility to assess an entity's ability to continue as a going concern, and to provide related footnote disclosures if there is substantial doubt about its ability to continue as a going concern. The pronouncement is effective for annual reporting periods ending after December 15, 2016 with early adoption permitted. The adoption of this guidance is not expected to have a material impact on the Company's financial statements.

3. Fair Value of Financial Assets and Liabilities — Derivative Instruments

ASC Topic 820, Fair Value Measurement (ASC 820), establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances.

ASC 820 identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC Topic 820 establishes a three-tier fair value hierarchy that distinguishes among the following:

Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

Level 2—Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.

Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Items measured at fair value on a recurring basis include common stock warrants and embedded derivatives related to the Company’s redeemable convertible preferred stock. During the periods presented, the Company has not changed the manner in which it values liabilities that are measured at fair value using Level 3 inputs. The following fair value hierarchy table presents information about each major category of the Company's financial liabilities measured at fair value on a recurring basis:

	Quoted Prices in
	Active Markets		Significant Other		Significant
	for Identical		Observable Inputs		Unobservable
	Items (Level 1)		(Level 2)		Inputs (Level 3)		Total
September 30, 2015
Liabilities
Series B preferred stock derivative liability	$	-	$	-	$	2,127,000	$	2,127,000
Warrant liability		-		-		10,000		10,000
Total liabilities	$	-	$	-	$	2,137,000	$	2,137,000

December 31, 2014
Liabilities
Series B preferred stock derivative liability	$	-	$	-	$	12,320,000	$	12,320,000
Warrant liability		-		-		5,826,000		5,826,000
Total liabilities	$	-	$	-	$	18,146,000	$	18,146,000

There were no transfers between Level 1, Level 2 or Level 3 of the fair value hierarchy for the three and nine months ended September 30, 2015 and the year ended December 31, 2014.

The following table sets forth a summary of changes in the fair value of the Company's Series B redeemable convertible preferred stock derivative and warrant liability, which represents a recurring measurement that is classified within Level 3 of the fair value hierarchy, wherein fair value is estimated using significant unobservable inputs:

				Series B Preferred
	Warrant			Stock Derivative
	Liability			Liability
Balance, December 31, 2014	$	5,826,000		$	12,320,000
Issuances		4,210,000			-
Exercises		(676,000	)		-
Conversions to common stock		-			(1,496,000	)
Warrants reclassified from liabilities to equity due to amendment of warrants		(5,462,000	)		-
Warrants reclassified from liabilities to equity due to increase in authorized shares		(3,281,000	)		-
Changes in estimated fair value		(607,000	)		(8,697,000	)
Balance, September 30, 2015	$	10,000		$	2,127,000

The fair value of the warrants on the date of issuance and on each re-measurement date for warrants classified as liabilities is estimated using the Monte Carlo valuation model. For this liability, the Company develops its own assumptions that do not have observable inputs or available market data to support the fair value. This method of valuation involves using inputs such as the fair value of the Company’s common stock, stock price volatility, the contractual term of the warrants, risk–free interest rates and dividend yields. Due to the nature of these inputs, the valuation of the warrants is considered a Level 3 measurement. The following assumptions were used at September 30, 2015 and December 31, 2014:

	September 30, 2015			December 31, 2014
	Series ⁽¹⁾			Series ⁽¹⁾
							June			July			December
	2011			2011			2013			2013			2013
Volatility		112	%		155	%		155	%		155	%		151	%
Expected term (years)		1.23			1.98			3.49			3.54			3.98
Risk-free interest rate		0.40	%		0.67	%		1.23	%		1.25	%		1.37	%
Dividend yield		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%
Exercise price	$	23.00		$	23.00		$	7.00		$	7.00		$	12.50
Common stock closing price	$	3.95		$	10.50		$	10.50		$	10.50		$	10.50

(1) See Note 6 – Warrants below for further description of the respective series of warrants.

The warrant liability is recorded on the accompanying consolidated balance sheets and is marked-to-market at each reporting period, with the change in fair value recorded as a component of change in fair value of warrant liability on the Company’s statements of operations.

The fair value of the Series B preferred stock derivative liability on each measurement date is estimated using the Monte Carlo valuation model. For this liability, the Company develops its own assumptions that do not have observable inputs or available market data to support the fair value. This method of valuation involves using inputs such as the fair value of the Company’s common stock, stock price volatility, the expected term of the Series B preferred stock, risk–free interest rates and dividend yields. Due to the nature of these inputs, the valuation of the Series B preferred conversion liability is considered a Level 3 measurement. The following assumptions were used at September 30, 2015 and December 31, 2014:

	September 30,			December 31,
	2015			2014
Volatility		102	%		91	%
Expected term (years)		1.63			1.25
Risk-free interest rate		0.08	%		0.36	%
Common stock dividend yield		0.00	%		0.00	%
Minimum non-diluting issuance price	$	7.00		$	7.00
Common stock closing price	$	3.95		$	10.50

The Series B preferred stock derivative liability is recorded on the accompanying consolidated balance sheet and is marked-to-market each reporting period, with the change in fair value recorded as a component of change in fair value of Series B preferred stock derivative liability on the Company’s statements of operations.

4. Net (Loss) Income per Common Share

The following table sets forth the computation of basic and diluted net (loss) income per share for the periods indicated:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2015			2014			2015			2014
Basic and diluted net (loss) income per common share calculation:
Net income	$	5,439,000		$	21,207,000		$	1,715,000		$	23,773,000
Accretion of Series B redeemable convertible preferred stock		(7,163,000	)		(323,000	)		(9,329,000	)		(955,000	)
Net (loss) income attributable to common stockholders	$	(1,724,000	)	$	20,884,000		$	(7,614,000	)	$	22,818,000
Weighted average common shares outstanding - basic		5,813,063			3,743,182			5,247,508			3,688,903
Net income (loss) per share of common stock - basic	$	(0.30	)	$	5.58		$	(1.45	)	$	6.19
Weighted average common shares outstanding - diluted		5,813,063			6,319,802			5,247,508			6,472,093
Net income (loss) per share of common stock - diluted	$	(0.30	)	$	3.30		$	(1.45	)	$	3.53

The following outstanding securities at September 30, 2015 and 2014 have been excluded from the computation of diluted weighted shares outstanding for the nine months ended September 30, 2015 and 2014, as they would have been anti-dilutive:

	September 30,		September 30,
	2015		2014
Options		631,126		15,280
Warrants		1,209,681		-
Series B redeemable convertible preferred stock as converted		1,505,571		-
Escrow		-		240,000
Total		3,346,378		255,280

5. Redeemable Convertible Preferred Stock

On June 13, 2013, the Company’s Board of Directors approved a resolution designating 9,357,935 shares of Preferred Stock as Series B redeemable convertible preferred stock (Series B) with an initial stated value of $1.40 and par value of $0.01. Each Series B share is convertible into 0.20 shares of common stock and is entitled to the number of votes equal to the number of shares of common stock into which such Series B share may be converted. These Series B shares may be converted to common stock by the holder of the shares at any time. The Series B shares shall be automatically converted into common stock upon the closing of an underwritten initial public offering by the Company occurring after June 13, 2013, with aggregate proceeds to the Company of at least $7.0 million and a price per share to the public of at least the Series B stated value of $1.40 per share upon the closing of which the shares of common stock of the Company are listed for trading on a major national stock exchange.

Holders of the Series B shares are entitled to receive cumulative, cash dividends at the rate of 10% of the Series B stated value. Such dividends accrue from day-to-day commencing on the original issue date, whether or not earned or declared by the Board of Directors, and are compounded annually. No dividends have been declared or paid through September 30, 2015.

At any time on or after June 26, 2018, the holders of at least two-thirds of the outstanding Series B shares may require the Company to redeem all of the outstanding Series B shares for an amount equal to the original issue price per share plus any accrued and unpaid dividends.

Holders of the Series B are entitled to a liquidation preference in an amount equal to the Series B stated value of $1.40 per share plus all accrued and unpaid dividends in the event of a liquidation, dissolution, or winding-up of the Company, or in the event the Company merges with or is acquired by another entity.

In connection with the private placement of Series B, the Company recorded a liability for an embedded derivative that required bifurcation under the applicable accounting guidance. The embedded derivative includes a redemption feature, multiple dividend features, as well as multiple conversion features with specified anti-dilution adjustments for certain financing transactions involving the issuance of securities at a price below a minimum non-diluting issuance price of $7.00 per share.

The following table summarizes the conversions of Series B shares to common stock pursuant to Series B shareholder elections during the nine months ended September 30, 2015:

					Amount
					Reclassified
	Series B		Common		from Liability
Conversion	Shares		Stock		into Stockholders'
Date	Converted		Issued		Equity ⁽¹⁾
April 8, 2015		107,100		21,420	$	219,000
May 4, 2015		23,587		4,717		36,000
May 11, 2015		250,000		50,000		381,000
July 16, 2015		262,500		52,500		318,000
August 13, 2015		500,000		100,000		542,000
Totals		1,143,187		228,637	$	1,496,000

(1) Not inclusive of liabilities for dividends payable upon conversion of these shares.

The Company re-measured the fair value of the derivative feature and recorded a gain of $7,045,000 for the quarter ended September 30, 2015 to adjust the liability associated with the conversion feature to its estimated fair value of $2,127,000 as of September 30, 2015. For the nine months ended September 30, 2015, the Company recorded a gain of $8,697,000 related to the change in fair value of the derivative feature.

At September 30, 2015, the Company reclassified $8,337,000 from additional paid-in capital to Series B redeemable convertible preferred stock to adjust the redemption value of the Series B to actual at that date, an increase of $6,845,000 from the $1,492,000 recorded at June 30, 2015, which was attributable to the reduction in the fair market value of the Series B stock derivative liability at September 30, 2015 as compared to June 30, 2015.

At September 30, 2015, the Company recorded dividends payable of $368,000 to former holders of preferred stock, which are classified as current liabilities on the Company’s Balance Sheet at that date.

6. Warrants

In connection with the March 16, 2015 private placement of 1,575,758 shares of the Company’s common stock at a price per share of $8.25, the Company issued warrants (Series March 2015) to purchase an aggregate of 393,939 shares of common stock at an exercise price of $10.75 per share to the purchasers of the common stock. In addition, the Company issued warrants to purchase an aggregate of 94,548 shares of common stock at an exercise price of $10.75 per share to the placement agents. These warrants expire in March 2020 and provided for a contingent cash payment of $2.5 million in liquidated damages to the holders of the warrants in the event the Company failed to either (i) increase the number of shares of common stock the Company is authorized to issue or (ii) effect a reverse split of the common stock, in either event sufficient to permit the exercise in full of the Warrants in accordance with their terms. Due to these provisions, the Company accounted for these warrants as liability instruments prior to the third quarter of 2015. The Company measured the fair value of these warrants on March 16, 2015 and recorded an initial warrant liability of $4,210,000, of which $3,396,000 represented the initial fair value of the warrants issued to investors and $814,000 as the initial fair value of the warrants issued to the placement agents. The Company recorded other expenses of $213,000 for the nine months ended September 30, 2015 representing a portion of the initial fair value of warrants issued to the placement agents attributable to the initial fair value of the warrants issued.

In connection with the December 2013 private placement of 1,440,140 shares of the Company’s common stock at a price per share of $12.50, the Company issued warrants (Series December 2013) to purchase an aggregate of 86,408 shares of common stock at an exercise price of $12.50 per share to the placement agents. These warrants, which expire December 2018, contain specified anti-dilution adjustment provisions for certain financing transactions involving the issuance of securities below a specified price and contain net settlement provisions. Due to these provisions, the Company accounted for these warrants as liability instruments. As a result of the March 16, 2015 private placement of common stock at a price of $8.25 per share, the anti-dilution adjustment provisions of these warrants resulted in an adjustment to their exercise price to $8.25 as of March 16, 2015.

In connection with the private placement of Series B, which occurred through two closings on June 26, 2013 and July 15, 2013, the Company issued warrants (Series June 2013 and Series July 2013, respectively) to purchase an aggregate of 600,804 shares of common stock at an exercise price of $7.00 per share. These warrants, which expire in June 2018 and in July 2018, respectively, contain anti-dilution adjustment provisions and contain net settlement provisions. Due to these provisions, the Company accounts for these warrants as liability instruments. The Company measured the fair value of these warrants on June 26, 2013 and July 15, 2013 and recorded initial warrant liabilities of $4,285,000 and $674,000, respectively, as part of the private placement proceeds and expensed $759,000 for warrants issued to the placement agent.

In January 2011, we completed the acquisition of Biocontrol Limited, an antimicrobial biotechnology company based in the United Kingdom, with the goal of developing their phage therapy programs using funding from the sale of our legacy gene therapy assets. On December 22, 2011, in connection with our acquisition of Biocontrol, the Company issued warrants (Series 2011) to purchase up to 27,103 shares of its common stock. These warrants expire in December 2016 and are exercisable at a price of $23.00 per share. As the terms of these warrants require that they be settled in registered shares of common stock, the Company accounts for these warrants as liability instruments.

The Company estimates the fair values of all warrants accounted for as liability instruments using a Monte Carlo valuation model.

From February through May 2013, in connection with the issuance of new convertible promissory notes, the Company issued warrants (Series 2013 Convertible Notes Warrants) to purchase up to 140,608 shares of its common stock. These warrants expire February through May 2018 and are exercisable at a price of $7.00 per share. The Company classifies these warrants as equity instruments.

On April 1, 2015, 52,120 warrants, issued on June 26, 2013, were exercised, resulting in the issuance of 52,120 shares of common stock and $630,000 being reclassified from the warrant liability account and into stockholders’ equity, based on the fair value of the warrants on the exercise date. On April 29, 2015, 4,524 warrants, issued on June 26, 2013, were exercised, resulting in the issuance of 4,524 shares of common stock and $46,000 was reclassified from the warrant liability account and into stockholders’ equity, based on the fair value of the warrants on the exercise date.

On May 8, 2015, the Company, upon approval of more than two-thirds of the holders of the 2013 warrants issued on June 26, 2013, July 15, 2013 and December 23, 2013, amended these warrants to remove certain anti-dilution adjustment provisions. As a result of this amendment, all outstanding warrants from those issuance dates were reclassified as equity instruments resulting in the reclassification of $5,462,000 from the warrant liability to stockholders’ equity, reflecting the fair value of these warrants on the amendment date.

On August 3, 2015, the shareholders of the Company approved a 1-for-50 reverse stock split of the Company’s common stock and increased the number of authorized shares of common stock to 670,000,000. As a result, the warrants issued in conjunction with the March 2015 private placement of common stock were reclassified from liability instruments to equity instruments. Accordingly, $3,281,000 was reclassified from warrant liability to stockholders’ equity, reflecting the fair value of these warrants on the effective date of the reverse split, and the accrued fair value of liquidated damages in the amount of $120,000 were also reclassified to stockholders’ equity.

The Company re-measured the fair value of the warrant liability and recorded a gain of $693,000 for the quarter ended September 30, 2015, reflecting a decrease in the liability associated with the warrants at their estimated fair value, which totaled $10,000 as of September 30, 2015. For the nine months ended September 30, 2015 the Company recorded a gain of $607,000 related to the change in fair value of the warrants for that period.

All exercise prices and share amounts of warrants are after giving consideration to the 1-for-50 reverse split of the Company’s common stock which was effective August 7, 2015.

The following table provides a summary of warrants outstanding, issued or exercised for the nine months ended September 30, 2015. Also included is the average exercise price per share and the aggregate proceeds to the Company if exercised as of September 30, 2015.

	Series
					June 2013 and July 2013
	March 2015				Series B Warrants					December 2013				2013 Convertible Notes				2011				Totals
																									Weighted
																									Average
			Exercise					Exercise				Exercise				Exercise				Exercise					Exercise
	Shares		Price		Shares			Price		Shares		Price		Shares		Price		Shares		Price		Shares			Price
Balance, December 31, 2014		-	$	-		523,705		$	7.00		86,410	$	12.50		140,611	$	7.00		27,104	$	23.00		777,830		$	8.00
Issuances		488,496		10.75		-			-		-		-		-		-		-		-		488,496			10.75
Exercises		-		-		(56,645	)		7.00		-		-		-		-		-		-		(56,645	)		7.00
Balance, September 30, 2015		488,496	$	10.75		467,060		$	7.00		86,410	$	12.50		140,611	$	7.00		27,104	$	23.00		1,209,681		$	9.90

Aggregate proceeds if exercised	$	5,251,332			$	3,269,420				$	1,080,125			$	984,277			$	623,392			$	11,975,842

7. Stockholders’ Equity (Deficit)

On March 16, 2015, the Company issued and sold 1,575,758 shares of common stock in a private placement at a price of $8.25 per share, for aggregate proceeds of $13.0 million. In conjunction with this private placement, the Company issued warrants to purchase an aggregate of 393,948 shares of common stock at an exercise price of $10.75 per share to the purchasers of the common stock. The Company paid $833,000 in fees to its placement agents, along with the issuance of warrants to purchase an aggregate of 94,548 shares of common stock at an exercise price of $10.75 per share. The Company valued these warrants as liability instruments and recorded a liability of $4,210,000 as of March 16, 2015. In the first quarter of 2015, the Company recorded $213,000 of other expenses representing the portion of the initial warrant value of the placement agent warrants related to the initial fair value of the warrants issued to the purchasers of the common stock. The remainder of the initial fair value of the warrants of $3,998,000 was treated as a reduction of additional paid-in-capital. In addition, $218,000 of the fees paid to its placement agent were expensed as other expenses in the nine months ended September 30, 2015 as they also represented issuance costs related to the initial fair value of the warrants issued to the purchasers of the common stock.

8. Stock-Based Compensation

The Company’s 2013 Stock Incentive Plan (Stock Incentive Plan) provides for the issuance of long-term incentive awards, or awards, in the form of non-qualified and incentive stock options, stock appreciation rights, stock grants and restricted stock units. The awards may be granted by the Company’s Board of Directors to its employees, directors and officers and to consultants, agents, advisors and independent contractors who provide services to the Company. The exercise price for stock options must not be less than the fair market value of the underlying shares on the date of grant. Stock options expire no later than ten years from the date of grant and generally vest and become exercisable over a four-year period following the date of grant. Every non-employee member of the Company’s Board of Directors may also receive an annual non-qualified stock option or restricted stock unit grant. Upon the exercise of stock options, the Company issues the resulting shares from shares reserved for issuance under the Stock Incentive Plan.

Stock-based compensation expense is reduced by an estimated forfeiture rate derived from historical employee termination behavior. If the actual number of forfeitures differs from the Company’s estimates, the Company may record adjustments to increase or decrease compensation expense in future periods.

The estimated grant-date fair value of the Company’s stock-based awards is amortized ratably over the awards’ service periods. Stock-based compensation expense recognized was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Research and development	$	29,000	$	38,000	$	88,000	$	116,000
General and administrative		116,000		209,000		161,000		598,000
Severance charge		4,000		1,161,000		4,000		1,161,000
Total stock-based compensation	$	149,000	$	1,408,000	$	253,000	$	1,875,000

The following table summarizes stock option activity for the nine months ended September 30, 2015:

				Options Outstanding
									Average
							Weighted		Remaining
	Shares						Average		Contractual
	Available						Exercise		Term		Intrinsic
	For Grant			Shares			Price		(Years)		Value
Balance, December 31, 2014		785,000			440,695		$	9.37		8.18	$	640,837
Increase in authorized shares		520,000
Granted		(547,181	)		547,181			8.72		-		-
Exercised		-			(214,815	)		8.00		-		(383,994	)
Forfeited		4,812			(4,812	)		13.64		-		-
Expired		-			(137,123	)		10.19		-		-
Balance, September 30, 2015		762,631			631,126		$	9.06		9.38	$	256,843
Vested or expected to vest at September 30, 2015					499,995		$	9.05		9.26	$	-
Exercisable at September 30, 2015					66,205		$	11.45		5.98	$	-

The intrinsic value of options exercisable as of September 30, 2015 was $0.0 million, based on the Company’s closing stock price of $3.95 per share and a weighted average exercise price of $11.45 per share.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of standard stock options at the grant date. The Black-Scholes model requires the Company to make certain estimates and assumptions, including estimating the fair value of the Company’s common stock, assumptions related to the expected price volatility of the Company’s common stock, the period during which the options will be outstanding, the rate of return on risk-free investments and the expected dividend yield for the Company’s common stock. The Company uses Monte Carlo valuation models to estimate the fair value of certain stock options with market-based vesting requirements. This method of option pricing involves the use of inputs such as the market value of the Company’s common stock, stock price volatility, the period during which the options will be outstanding, the rate of return on risk-free investments, expected dividend yield for the Company’s stock, and certain estimates of future value of the Company’s common stock.

During the third quarter of 2015, the Company issued 547,181 common stock options to its executives and board members with an average exercise price $8.72 per share. Included in this amount were 399,716 stock options, with an exercise price of $9.45, to its Chief Executive Officer, pursuant to his employment agreement dated April 24, 2015.

As of September 30, 2015, there was $4.4 million of total unrecognized compensation expense related to unvested stock options that will be recognized over the weighted average remaining period of 1.98 years.

Shares Reserved For Further Issuance

As of September 30, 2015, the Company had reserved shares of its common stock for future issuance as follows:

	Shares Reserved
Stock options outstanding		631,126
Available for future grants under the Stock Incentive Plan		762,631
Warrants		1,209,681
Total shares reserved		2,603,438

9. Collaborative and Other Agreements

In June 2013, the Company entered into a Collaborative Research and Development Agreement with the United States Army Medical Research and Materiel Command and the Walter Reed Army Institute of Research. The Collaborative Research and Development Agreement is focused on developing and commercializing bacteriophage therapeutics to treat S. aureus infections. During the three and nine months ended September 30, 2015, the Company recorded no payments under the Collaborative Research and Development Agreement. During the three and nine months ended September 30, 2014, the Company paid Walter Reed Army Institute of Research $0 and $202,000, respectively, for services provided under the Collaborative Research and Development Agreement.

In March 2013, the Company entered into an Exclusive Channel Collaboration Agreement with Intrexon Corporation. This agreement allows the Company to utilize Intrexon’s synthetic biology platform for the identification, development and production of bacteriophage-containing human therapeutics. The Company paid a one-time technology access fee in 2013 to Intrexon of $3,000,000 in common stock. Pursuant to the agreement, the Company is required to pay Intrexon, in cash or stock, milestone fees of $2,500,000 for the initiation and commencement of the first Phase 2 trial and $5,000,000 upon the first regulatory approval of any product in any major market country. With regard to each product sold by the Company, the Company is required to pay, in cash, tiered royalties on a quarterly basis based on net sales of AmpliPhi Products, calculated on a product-by-product basis. No milestones have been met and no milestone payments have been paid to Intrexon through September 30, 2015. During the three and nine months ended September 30, 2015, the Company recorded $37,000 and $81,000, respectively, in expenses under the Exclusive Channel Collaboration Agreement, with cash payments totaling $40,000 and $75,000, respectively. During the three and nine months ended September 30, 2014, the Company recorded $304,000 and $843,000, respectively, in expenses under the Exclusive Channel Collaboration Agreement, with cash payments totaling $214,000 and $730,000, respectively.

In April 2013, the Company entered into a collaboration agreement with the University of Leicester to develop a phage therapy that targets and kills all toxin types of C. difficle. In August 2013, the Company entered into a collaboration agreement with both the University of Leicester and the University of Glasgow to carry out certain animal model development work. Under these agreements, which are referred to collectively as the Leicester Development Agreements, the Company provides payments to the University of Leicester to carry out in vitro and to the University of Glasgow to carry out animal model development work on the University of Leicester’s development of a bacteriophage therapeutic to resolve C. difficile infections. The Company licensed related patents, materials and know-how from the University of Leicester. Under the Leicester Development Agreements, the University of Leicester will provide the bacteriophage and act as overall project coordinator for the development work. All rights, title and interest to any intellectual property developed under the Leicester Development Agreements belong to the Company. Under the Leicester License Agreement, the Company has exclusive rights to certain background intellectual property of the University of Leicester, for which it will pay the University of Leicester royalties based on product sales and make certain milestone payments based on product development. In October 2014, the Company renewed this collaboration, effective as of November 9, 2014. This agreement expired November 12, 2015. The Company expects the agreement to be renewed. During the three and nine months ended September 30, 2015, the Company paid and expensed amounts to the University of Leicester under the Leicester Development Agreements in the amount of $55,000 and $220,000, respectively. During the three and nine months ended September 30, 2014, the Company paid and expensed amounts to the University of Leicester under the Leicester Development Agreements in the amount of $0 and $166,000, respectively. The Company paid and expensed amounts to the University of Glasgow under the Leicester Development Agreements of $0 and $61,000 for the three and nine months ended September 30, 2015 respectively. The Company paid and expensed amounts to the University of Glasgow under the Leicester Development Agreements of $61,000 and $184,000 for the three and nine months ended September 30, 2014, respectively.

In September 2015, the Company entered into a non-exclusive patent license agreement with Takara Bio Inc. (the Takara Agreement). Under this agreement Takara licensed certain patents related to AAV1 Vector gene delivery systems, for which the Company is an exclusive licensor with the University of Pennsylvania. The Company received a $40,000 non-refundable, up-front licensing payment and shall receive royalties from Takara of 12.0% of net license product sales and 6.0% of service revenues associated with the licensed products. The agreement calls for minimum annual royalties of $15,000 commencing on February 28, 2016. In addition, the Takara Agreement provides milestone fees to the Company of $30,000 of the first $1,000,000 of licensed product revenues by Takara and an additional $40,000 when cumulative net sales of the licensed product by Takara exceed $2,000,000.

10. Severance Charge

On September 15, 2014, by mutual agreement of the Board of Directors (the “Board”) of the Company and Philip J. Young, Mr. Young stepped down from his role as President and Chief Executive Officer of the Company, effective September 15, 2014. In accordance with Mr. Young’s employment agreements, the Company recorded a severance charge in 2014 of $1,864,000 related to severance-period compensation and benefits and stock-based compensation expense related to the accelerated vesting of stock options. In the third quarter of 2015, the Company recorded an additional severance charge of $289,000 related to the departure of an executive, which included severance period compensation and benefits and stock-based compensation related to the accelerated vesting of stock options.

The severance accrual as of December 31, 2014 and September 30, 2015 is as follows:

Accrued severance, December 31, 2014	$	555,000
Cash payments in 2015		(351,000	)
Additions in 2015		287,000
Accrued severance, September 30, 2015	$	491,000

11. Legal Proceedings

The Company is not involved in any legal proceedings that it expects to have a material adverse effect on its business, financial condition, results of operations and cash flows.

12. Subsequent Events

On November 2, 2015, the Company signed a Clinical Trial Agreement with the Adelaide Research & Innovation Pty Ltd on behalf of the University of Adelaide for the conduct of a Phase One Investigator Initiated clinical trial to evaluate the safety and tolerability of AB-SA01 in patients with chronic rhinosinusitis associated with Staphylococcus aureus infection. The study will be conducted at the Queen Elizabeth Hospital Department of Otolaryngology Head and Neck Surgery.

On November 5, 2015, the Company’s Board of Directors appointed Vijay Samant as a Class II director of the Company and Paul C. Grint, M.D. as a Class III director of the Company. In connection with their appointments on November 5, 2015, each of Mr. Samant and Dr. Grint was granted, under the Company’s 2013 Stock Incentive Plan, a stock option to purchase 16,200 of the Company’s common stock at an exercise price per share of $5.65, which was the closing price of the Company’s common stock on the NYSE MKT on the date of grant. Each of the stock options vests as follows: 25% of the shares subject to the option will vest one year following the date of grant, and thereafter the remaining shares will vest in equal monthly installments over the following 36 months. As non-employee directors, each of Mr. Samant and Dr. Grint will also be entitled to receive an annual cash retainer of $40,000 for his service on the Board.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q, and the audited financial statements and notes thereto as of and for the year ended December 31, 2014 included with our Annual Report filed with the SEC.

Statements contained in this report that are not statements of historical fact are forward-looking statements within the meaning within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements include, without limitation, statements concerning product development plans, the use of bacteriophages to kill bacterial pathogens, having resources sufficient to fund our operations through the third quarter of 2016, future revenue sources, selling and marketing expenses, general and administrative expenses, clinical trial and other research and development expenses, capital resources, capital expenditures, tax credits and carry-forwards, and additional financings or borrowings. Words such as “believe,” “anticipate,” “plan,” “expect,” “intend,” “will,” “goal,” “potential” and similar expressions are intended to identify forward-looking statements, though not all forward-looking statements necessarily contain these identifying words. These statements are subject to risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth below under Part II, Item 1A, “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. These forward-looking statements speak only as of the date on which they were made, and we undertake no obligation to update any forward-looking statements.

Overview

AmpliPhi Biosciences is a biotechnology company focused on the discovery, development and commercialization of novel phage therapeutics. Our proprietary pipeline is based on the use of bacteriophages, a family of viruses that infect only bacteria. Phages have powerful and highly selective mechanisms of action that permit them to target and kill specific bacterial pathogens, including the so-called multi-drug-resistant or “Superbug” strains.

We are combining our proprietary approach and expertise in identifying, characterizing and developing naturally occurring bacteriophages with that of our collaboration partners in bacteriophage biology, drug engineering, development and manufacturing, to develop second-generation bacteriophage products. We believe that phages represent a promising means to treat bacterial infections, especially those that have developed resistance to current medicines.

Our lead programs consist of three product candidates: AB-PA01, for the treatment of P. aeruginosa lung infections in cystic fibrosis (CF) patients; AB-SA01, for the treatment of S. aureus infections, including methicillin-resistant S. aureus (MRSA) infections; and AB-CD01, for the treatment of C. difficile infections.

We have generally incurred net losses since our inception and our operations to-date have been primarily limited to research and development and raising capital. We have raised approximately $43.6 million in capital since the shift in our focus to novel phage therapeutics in February 2011 to support our operations, including a $13 million private placement of common stock in March 2015, which provided us with net proceeds of approximately $12.4 million after commissions to placement agents.

To date, we have not generated any product revenue and have primarily financed our operations through the sale and issuance of convertible notes and the private placement of our equity securities. As of September 30, 2015, we had a cumulative deficit of $360.3 million. We anticipate that a substantial portion of our capital resources and efforts in the foreseeable future will be focused on completing the development and obtaining regulatory approval of our product candidates.

We expect our research and development expenses to increase as we continue development of our product candidates. We also expect to incur additional expenses associated with operating as a public company. As a result, we expect to continue to incur significant and increasing operating losses at least for the next several years. We do not expect to generate product revenue unless and until we successfully complete development and obtain marketing approval for at least one of our product candidates.

We currently expect to use our existing cash and cash equivalents for the continued research and development of our product candidates and for working capital and other general corporate purposes.

We may also use a portion of our existing cash and cash equivalents for the potential acquisition of, or investment in, product candidates, technologies, formulations or companies that complement our business, although we have no current understandings, commitments or agreements to do so. We expect that these funds will not be sufficient to enable us to complete all necessary development of any potential product candidates. Accordingly, we will be required to obtain further funding through one or more other public or private equity offerings, debt financings, collaboration or licensing arrangements or other sources. Adequate additional funding may not be available to us on acceptable terms, or at all. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs.

Results of Operations

Comparison of three and nine months ended September 30, 2015 and 2014

Revenue

For the quarters ended September 30, 2015 and 2014, we recognized $0.1 million in revenue related to sublicensing agreements from our former gene therapy program. For the nine months ended September 30, 2015 and 2014, we recognized $0.3 million in revenue from these sublicenses.

Research and Development Expenses

Research and development expenses for the quarter ended September 30, 2015 totaled $0.7 million compared to $1.8 incurred in the same period of 2014. This decline of $1.1 million was primarily related to lower non-clinical research spending in 2015 as compared to 2014, the impact of one-time start-up costs in 2014 related to our Slovenia cGMP manufacturing facility, the elimination of certain UK-based personnel, and the benefit from Australian government research grants of $0.3 million in 2015.

Research and development expenses for the nine months ended September 30, 2015 totaled $2.8 million compared to $4.7 million incurred in the same period of 2014. This decline of $1.9 million was primarily related to lower non-clinical research spending in 2015 as compared to 2014, one-time start-up costs in 2014 related to our Slovenia cGMP manufacturing facility, and Australian government research grants of $0.3 million in 2015. Partially offsetting these factors were increased costs related to the Slovenian facility being operational for the full nine months ended September 30, 2015.

We anticipate that research and development spending in future periods will increase from levels of the first nine months of 2015 as we initiate non-clinical research studies, hire additional research and development staff, prepare to start clinical trials, and continue our discovery efforts.

General and Administrative Expenses

General and administrative expenses for the quarter ended September 30, 2015 were $1.6 million compared to $1.7 million for the same period of 2014. The $0.1 million decrease was primarily attributable to $0.3 million expensed in the third quarter of 2014 related to payments to certain shareholders as required by the terms of our Series B Preferred Stock Purchase Agreement, which were partially offset by increases in compensation and general corporate expenses.

General and administrative expenses for the nine months ended September 30, 2015 were $4.6 million compared to $5.3 million for the same period of 2014. This $0.7 million decrease was primarily attributable to lower cash and stock compensation expenses related to the departure of the Company’s prior Chief Executive Officer in the third quarter of 2014 and $0.5 million expensed in the same period of 2014 related to payments to certain shareholders as required by the terms of our Series B Preferred Stock Purchase Agreement. Partially offsetting these reductions were payroll costs associated with the appointment of our new Chief Executive Office on May 18, 2015 and higher legal and accounting fees in 2015 as compared to 2014.

Other Income (Expense)

We recorded a gain of $0.7 million for the quarter ended September 30, 2015 related to the change in fair value of our warrant liability, which was primarily attributable to a decrease in the value of our common stock price at September 30, 2015 as compared to June 30, 2015. For the nine months ended September 30, 2015, we recorded a gain of $0.6 million related to the change in fair value of our warrant liability, which was primarily attributable to a decrease in the value of our common stock price at September 30, 2015 as compared to December 31, 2014.

We recorded a gain of $7.0 million for the quarter ended September 30, 2015 related to the change in fair value of our Series B preferred stock derivative liability. This gain was primarily attributable to a decrease in the value of our common stock price at September 30, 2015 as compared to June 30, 2015. For the nine months ended September 30, 2015, we recorded a gain of $8.7 million related to the change in fair value of our Series B preferred stock derivative liability, with this gain primarily attributable to a decrease in the value of our common stock price at September 30, 2015 as compared to December 31, 2014.

We recorded a gain of $7.1 million for the quarter ended September 30, 2014 related to the change in fair value of our warrant liability, which was primarily attributable to a decrease in the value of our common stock price at September 30, 2014 as compared to June 30, 2014. For the nine months ended September 30, 2014, we recorded a gain of $9.2 million related to the change in fair value of our warrant liability, which was primarily attributable to a decline in the value of our common stock at September 30, 2014 as compared to December 31, 2013.

We recorded a gain of $19.4 million for the quarter ended September 30, 2014 related to the change in fair value of our Series B preferred stock derivative liability. This gain was primarily attributable to a decrease in the price of our common stock at September 30, 2014 as compared to June 30, 2014. For the nine months ended September 30, 2014, we recorded a gain of $26.0 million related to the change in fair value of our Series B preferred stock derivative liability. This gain was primarily attributable to a decrease in the price of our common stock at September 30, 2014 as compared to December 31, 2013.

We will continue to adjust the liability related to our outstanding Series 2011 warrants to fair value until the earlier of exercise or expiration of the warrants or until terms of the warrants no longer require them to be accounted for as liability instruments. We will continue to adjust the liability related to our Series B preferred stock derivative feature until the conversion of our Series B preferred stock into common stock.

We also recorded expenses of $0.3 million for the nine months ended September 30, 2015 consisting of placement agent costs of $0.4 million from our March 2015 private placement of common stock, which related to placement agent fees and the initial fair value of warrants issued to the placement agents, partially offset by a gain of $0.1 million related to the re-valuation of liquidated damage liabilities associated with the March 2015 warrants.

Liquidity and Capital Resources

We have incurred net losses since inception through September 30, 2015 of $360.3 million, of which $315.5 million was incurred as a result of our prior focus on gene therapy in fiscal years 2010 and earlier. We have not generated any product revenues and do not expect to generate revenue from product candidates in the near term.

We had cash and cash equivalents of $11.7 million and $6.6 million at September 30, 2015 and December 31, 2014, respectively.

Net cash used in operating activities for the nine months ended September 30, 2015 was $7.5 million. We recorded net income for the period of $1.7 million, including a non-cash gain on warrant liability of $0.6 million, a non-cash gain on Series B preferred stock derivative liability of $8.7 million, and a non-cash gain of $0.1 million related to the re-valuation of a liquidated damages liability. Non-cash charges for warrants issued to placement agents related to our March 2015 private placement of common stock, stock-based compensation expense, depreciation expense, and patent amortization expense, which collectively represented a source of cash of approximately $0.7 million. An increase in prepaid expenses and other current assets, primarily related to accrued Australian government research and development grants, along with decreases in accounts payable, accrued expenses and other and accrued severance were partially offset by a reduction in accounts receivable and collectively represented a $0.5 million use of cash used in operating activities during the nine months ended September 30, 2015.

Net cash used in investing activities was $0.2 million and $1.2 million for the nine months ended September 30, 2015 and September 30, 2014, respectively. Net cash used in investing activities for the nine months ended September 30, 2014 was primarily attributable to the build-out of our facility and the purchase of equipment for our Slovenia manufacturing facility.

Cash provided by financing activities for the nine months ended September 30, 2015 totaled $12.8 million, and was comprised of the gross proceeds of $13.0 million from the March 2015 private placement of common stock and warrants to purchase common stock, less commissions and other cash expenses related to the issuance of approximately $0.6 million. We also received $0.4 million in proceeds from the exercise of warrants during this period.

We expect to need to raise additional capital or incur indebtedness to continue to fund our future operations. We may seek to raise capital through a variety of sources, including:

the public equity market;

private equity financing;

collaborative arrangements;

licensing arrangements; and/or

public or private debt.

We believe our existing resources are sufficient to fund our planned operations through the third quarter of 2016. This estimate is based on our current product development calendar, projected staffing expenses, working capital requirements, and capital expenditure plans.

Our ability to raise additional funds will depend on our clinical and regulatory events, our ability to identify promising in-licensing opportunities and factors related to financial, economic and market conditions, many of which are beyond our control. We cannot be certain that sufficient funds will be available to us when required or on satisfactory terms. If adequate funds are not available, we may be required to significantly reduce or refocus our operations or to obtain funds through arrangements that may require us to relinquish rights to certain of our products, technologies or potential markets, any of which could delay or require that we curtail our development programs or otherwise have a material adverse effect on our business, financial condition and results of operations. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities would result in ownership dilution to our existing stockholders.

If we are unable to secure additional financing on a timely basis or on terms favorable to us, we may be required to cease or reduce certain research and development projects, to sell some or all of our technology or assets or to merge all or a portion of our business with another entity. Insufficient funds may require us to delay, scale back or eliminate some or all of our activities, and if we are unable to obtain additional funding, there is uncertainty regarding our continued existence.

Contractual Obligations and Commitments

As of September 30, 2015, there have been no material changes, outside of the ordinary course of business, in our outstanding contractual obligations from those disclosed within “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, as contained in our Annual Report on Form 10-K for the year ended December 31, 2014.

Off-Balance Sheet Arrangements

As of September 30, 2015, we did not have off-balance sheet arrangements.

Recent Accounting Pronouncements

Refer to footnotes.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

Item 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this report. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective disclosure controls system, misstatements due to error or fraud may occur and not be detected.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer, have concluded that our disclosure controls and procedures were effective at the reasonable assurance level during the period covered by this report.

Changes in Internal Control Over Financial Reporting

An evaluation was also performed under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of any change in our internal control over financial reporting that occurred during our last fiscal quarter and that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. That evaluation did not identify any change in our internal control over financial reporting that occurred during our latest fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluations, there were no changes in our internal control over financial reporting during the latest fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, other that the following:

We continue to review, document and test our internal control over financial reporting. We also continue to take steps to remediate certain identified deficiencies in our internal control over financial reporting. Although efforts remain in process, steps taken during the last fiscal quarter and earlier in 2015 that resulted in improvements to our internal control over financial reporting included the following:


	•	To address a prior material weakness related to accounting for complex and non-routine transactions, resulting in the conclusion that our internal control over financial reporting was not effective as of December 31, 2014, we engaged consultants with experience in accounting for more complex financial instruments and other complex accounting matters, to provide more resources for these accounting matters;


	•	We employed new financial reporting processes and procedures;

•

We employed new accounting processes and control procedures; and


	•	We revisited and updated existing accounting policies and procedures.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time we are involved in legal proceedings or subject to claims arising in the ordinary course of our business. Although the results of litigation and claims cannot be predicted with certainty, we do not believe we are a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Item 1A. Risk Factors

You should consider carefully the following information about the risks described below, together with the other information contained in this Quarterly Report and in our other public filings in evaluating our business. The risk factors set forth below that are marked with an asterisk (*) contain changes to the similarly titled risk factors included in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2014. If any of the following risks actually occurs, our business, financial condition, results of operations, and future growth prospects would likely be materially and adversely affected. In these circumstances, the market price of our common stock would likely decline.

Risks Related to Our Business

We are seeking to develop antibacterial agents using bacteriophage technology, which has not resulted in any approved product on the market to date.

We are developing our product candidates with bacteriophage technology. We have not, nor to our knowledge has any other company, received regulatory approval from the U.S. Food and Drug Administration, or FDA, or equivalent foreign agencies for a pharmaceutical drug based on this approach. While in vitro studies have characterized the behavior of bacteriophages in cell cultures and there exists a body of literature regarding the use of phage therapy in humans, the safety and efficacy of phage therapy in humans has not been extensively studied in well-controlled modern clinical trials. Most of the prior research on phage-based therapy was conducted in the former Soviet Union prior to and immediately after World War II and lacked appropriate control group design or lacked control groups at all. Furthermore, the standard of care has changed substantially during the ensuing decades since those studies were performed, making claims of improved cure rates open for debate. We cannot be certain that our approach will lead to the development of approvable or marketable drugs.

Developing phage-based therapies on a commercial scale will also require developing new manufacturing processes and techniques. We and our third-party collaborators may experience delays in developing manufacturing capabilities for our product candidates, and may not be able to do so at the scale required to conduct efficiently the clinical trials required to obtain regulatory approval of our products, or to manufacture commercial quantities of our products, if approved.

In addition, the FDA or other regulatory agencies may lack experience in evaluating the safety and efficacy of drugs based on these approaches, which could lengthen the regulatory review process, increase our development costs and delay or prevent commercialization of our product candidates.

Delays in our clinical trials could result in us not achieving anticipated developmental milestones when expected, increased costs and delay our ability to obtain regulatory approval and commercialize our product candidates.

Delays in our ability to commence or enroll patients for our clinical trials could result in us not meeting anticipated clinical milestones and could materially impact our product development costs and delay regulatory approval of our product candidates. We do not know whether planned clinical trials will be commenced or completed on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including:

delays in the development of manufacturing capabilities for our product candidates to enable their consistent production at clinical trial scale;

delays in the commencement of clinical trials as a result of clinical trial holds or the need to obtain additional information to complete an Investigational New Drug Application (IND);

delays in obtaining regulatory approval to commence new trials;

adverse safety events experienced during our clinical trials;

delays in obtaining clinical materials;

slower than expected patient recruitment for participation in clinical trials; and

delays in reaching agreement on acceptable clinical trial agreement terms with prospective sites or obtaining institutional review board approval.

If we do not successfully commence or complete our clinical trials on schedule, the price of our common stock may decline.

We have not completed formulation development of any of our product candidates .*

The development of our bacteriophage product candidates requires that we isolate, select and combine a number of bacteriophage that target the desired bacteria for that product candidate. The selection of bacteriophage for any of our product candidates is based on a variety of factors, including without limitation the ability of the selected phages, in combination, to successfully kill the targeted bacteria, the degree of cross-reactivity of the individual phages with the same part of the bacterial targets, the ability of the combined phages to satisfy regulatory requirements, our ability to manufacture sufficient quantities of the phages, intellectual property rights of third parties, and other factors. While we have selected an initial formulation of AB-SA01 for the treatment of S. aureus infections, there can be no assurance that this will be the final formulation of AB-SA01 for commercialization. In addition, we have initiated final phage selection for AB-PA01, our P. aeruginosa product. AB-CD01, which is our C. difficile product, is at an earlier stage. If we are unable to complete formulation development of our product candidates in the time frame that we have anticipated, then our product development timelines, and the regulatory approval of our product candidates, could be delayed.

We will need to raise additional capital to continue operations.*

Our consolidated financial statements for the periods ended September 30, 2015 and December 31, 2014 were prepared under the assumption that we would continue our operations as a going concern. However, we have had recurring losses from operations, negative operating cash flow and an accumulated deficit.

In December 2013, we completed a private placement of shares of our common stock, which raised approximately $18.0 million, prior to commissions. In March 2015, we completed a private placement of shares of our common stock and warrants, which raised approximately $13 million, prior to commissions. We do not generate any cash from operations and must raise additional funds in order to continue operating our business. We expect to continue to fund our operations primarily through equity and debt financings in the future. If additional capital is not available, we may not be able to continue to operate our business pursuant to our business plan or we may have to discontinue our operations entirely. We believe that our existing resources are sufficient to fund our planned operations through the third quarter of 2016.

Developing drugs and conducting clinical trials is expensive. Our future funding requirements will depend on many factors, including:

	·	the costs and timing of our research and development activities;

	·	the progress and cost of our clinical trials and other research and development activities;

	·	the cost and timing of securing manufacturing capabilities for our clinical product candidates and commercial products, if any;

	·	the terms and timing of any collaborative, licensing, acquisition or other arrangements that we may establish;

	·	the costs and timing of obtaining regulatory approvals;

	·	the costs of filing, prosecuting, defending and enforcing any patent applications, claims, patents and other intellectual property rights; and

	·	the costs of lawsuits involving us or our product candidates.

We will seek additional capital to support our product development activities. We may seek funds through arrangements with collaborators or others that may require us to relinquish rights to the products candidates that we might otherwise seek to develop or commercialize independently. We cannot be certain that we will be able to enter into any such arrangements on reasonable terms, if at all.

We may seek to raise capital through a variety of sources, including:

	·	the public equity market;

	·	private equity financing;

	·	collaborative arrangements;

	·	licensing arrangements; and/or

	·	public or private debt.

Our ability to raise additional funds will depend, in part, on the status of our product development activities and other business operations, as well as factors related to financial, economic, and market conditions, many of which are beyond our control. We cannot be certain that sufficient funds will be available to us when required or on satisfactory terms, if at all. Raising additional capital through the sale of securities could cause significant dilution to our stockholders. If adequate funds are not available, we may be required to significantly reduce or refocus our operations or to obtain funds through additional arrangements that may require us to relinquish rights to certain of our products, technologies or potential markets, any of which could delay or require that we curtail or eliminate some or all of our development programs or otherwise have a material adverse effect on our business, financial condition and results of operations. In addition, we may have to delay, reduce the scope of or eliminate some of our research and development, which could delay the time to market for any of our product candidates, if adequate funds are not available.

If we are unable to secure additional financing on a timely basis or on terms favorable to us, we may be required to cease or reduce certain research and development projects, to sell some or all of our technology or assets or to merge all or a portion of our business with another entity. Insufficient funds may require us to delay, scale back, or eliminate some or all of our activities, and if we are unable to obtain additional funding, there is uncertainty regarding our continued existence.

Preclinical studies and Phase 1 or 2 clinical trials of our product candidates may not predict the results of subsequent human clinical trials.*

Preclinical studies, including studies of our product candidates in animal models of disease, may not accurately predict the result of human clinical trials of those product candidates. In particular, promising animal studies suggesting the efficacy of prototype phage products in the treatment of bacterial infections, such as P. aeruginosa and S. aureus, may not predict the ability of these products to treat similar infections in humans. Our phage technology may be found not to be efficacious in treating bacterial infections alone or in combination with other agents, when studied in human clinical trials.

To satisfy FDA or foreign regulatory approval standards for the commercial sale of our product candidates, we must demonstrate in adequate and controlled clinical trials that our product candidates are safe and effective. Success in early clinical trials, including Phase 2 trials, does not ensure that later clinical trials will be successful. Our initial results from Phase 1/2 clinical trials also may not be confirmed by later analysis or subsequent larger clinical trials. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after obtaining promising results in earlier clinical trials.

Our product candidates must undergo rigorous clinical testing, the results of which are uncertain and could substantially delay or prevent us from bringing them to market.

Before we can obtain regulatory approval for a product candidate, we must undertake extensive clinical testing in humans to demonstrate safety and efficacy to the satisfaction of the FDA or other regulatory agencies. Clinical trials of new drug candidates sufficient to obtain regulatory marketing approval are expensive and take years to complete.

We cannot be certain of successfully completing clinical testing within the time frame we have planned, or at all. We may experience numerous unforeseen events during, or as a result of, the clinical trial process that could delay or prevent us from receiving regulatory approval or commercializing our product candidates, including the following:

	·	our clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical and/or preclinical testing or to abandon programs;

	·	the results obtained in earlier stage clinical testing may not be indicative of results in future clinical trials;

	·	clinical trial results may not meet the level of statistical significance required by the FDA or other regulatory agencies;

	·	enrollment in our clinical trials for our product candidates may be slower than we anticipate, resulting in significant delays and additional expense;

	·	we, or regulators, may suspend or terminate our clinical trials if the participating patients are being exposed to unacceptable health risks; and

	·	the effects of our product candidates on patients may not be the desired effects or may include undesirable side effects or other characteristics that may delay or preclude regulatory approval or limit their commercial use, if approved.

Completion of clinical trials depends, among other things, on our ability to enroll a sufficient number of patients, which is a function of many factors, including:

	·	the therapeutic endpoints chosen for evaluation;

	·	the eligibility criteria defined in the protocol;

	·	the perceived benefit of the investigational drug under study;

	·	the size of the patient population required for analysis of the clinical trial’s therapeutic endpoints;

	·	our ability to recruit clinical trial investigators and sites with the appropriate competencies and experience;

	·	our ability to obtain and maintain patient consents; and

	·	competition for patients by clinical trial programs for other treatments.

We may experience difficulties in enrolling patients in our clinical trials, which could increase the costs or affect the timing or outcome of these clinical trials. This is particularly true with respect to diseases with relatively small patient populations.

We must continue to develop manufacturing processes for our lead product candidates and any delay in or our inability to do so would result in delays in our clinical trials and materially and negatively affect our business and results.*

We are developing novel manufacturing processes for the production of AB-SA01 for treatment of S. aureus (including MRSA) infections, AB-PA01for the treatment of P. aeruginosa infections and AB-CD01 for the treatment of C. difficile infections at facilities in Ljubljana, Slovenia. The manufacturing processes for our product candidates, and the scale up of such processes for clinical trials, is novel, and there can be no assurance that we will be able to complete this work in a timely manner, if at all. Any delay in the development or scale up of these manufacturing processes could delay the start of clinical trials and harm our business. Our facilities in Slovenia must also undergo ongoing inspections by JAZMP, the Slovenian agency that regulates and supervises pharmaceutical products in Slovenia, for compliance with their and the FDA’s current good manufacturing practice regulations, or cGMP regulations, before the respective product candidates can be approved for use in clinical trials or commercialization. We have received GMP certification from JAZMP to manufacture bacteriophage drug substances and sterile final products. We will also be subject to additional inspections for GMP compliance for our other product candidates, and may be subject to additional inspections for AB-SA01. In the event these facilities do not receive a satisfactory cGMP inspection for the manufacture of our product candidates, we may need to fund additional modifications to our manufacturing process, conduct additional validation studies, or find alternative manufacturing facilities, any of which would result in significant cost to us as well as a delay of up to several years in obtaining approval for such product candidate.

Our manufacturing facilities will be subject to ongoing periodic inspection by the European regulatory authorities, including JAZMP, and the FDA for compliance with European and FDA cGMP regulations. Compliance with these regulations and standards is complex and costly, and there can be no assurance that we will be able to comply. Any failure to comply with applicable regulations could result in sanctions being imposed (including fines, injunctions and civil penalties), failure of regulatory authorities to grant marketing approval of our product candidates, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and criminal prosecution.

We may conduct clinical trials for our products or product candidates outside the United States and the FDA may not accept data from such trials.*

We may conduct one or more of our clinical trials outside the United States. Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of such study data by the FDA is subject to certain conditions. For example, the study must be well designed and conducted and performed by qualified investigators in accordance with ethical principles. The study population must also adequately represent the U.S. population, and the data must be applicable to the U.S. population and U.S. medical practice in ways that the FDA deems clinically meaningful. Generally, the patient population for any clinical studies conducted outside of the United States must be representative of the population for whom we intend to label the product in the United States. In addition, such studies would be subject to the applicable local laws and FDA acceptance of the data would be dependent upon its determination that the studies also complied with all applicable U.S. laws and regulations. There can be no assurance the FDA will accept data from trials conducted outside of the United States. If the FDA does not accept any such data, it would likely result in the need for additional trials, which would be costly and time consuming and delay aspects of our business plan.

We may need to license additional intellectual property rights. *

The development and commercialization of phage-based antibacterial agents may require us to obtain rights to intellectual property from third parties. For example, pursuant to our Collaborative Research and Development Agreement with the United States Army Medical Research and Materiel Command and the Walter Reed Army Institute of Research, we are currently focusing on developing bacteriophage therapeutics to treat S. aureus infections. To the extent the intellectual property is generated from the United States Army Medical Research and Materiel Command or Walter Reed Army Institute of Research that is used in a commercial product, we may be obligated to make payments such as royalties, licensing fees and milestone payments. We may also determine that it is necessary or advisable to license other intellectual property from third parties. There can be no assurance that such intellectual property rights would be available on commercially reasonable terms, if at all.

We are planning to conduct an investigator-sponsored clinical trial of AB-SA01 at the University of Adelaide. To the extent that intellectual property is generated as a result of the study that is used in a commercial product, we may be obligated to make payments, such as royalties, licensing fees, and milestone payments. There can be no assurance that such intellectual property rights would be available on commercially reasonable terms, if at all.

We are subject to significant regulatory approval requirements, which could delay, prevent or limit our ability to market our product candidates.*

Our research and development activities, preclinical studies, clinical trials and the anticipated manufacturing and marketing of our product candidates are subject to extensive regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in Europe and elsewhere. There can be no assurance that our manufacturing facilities will satisfy the requirements of the FDA or comparable foreign authorities. We require the approval of the relevant regulatory authorities before we may commence commercial sales of our product candidates in a given market. The regulatory approval process is expensive and time-consuming, and the timing of receipt of regulatory approval is difficult to predict. Our product candidates could require a significantly longer time to gain regulatory approval than expected, or may never gain approval. We cannot be certain that, even after expending substantial time and financial resources, we will obtain regulatory approval for any of our product candidates. A delay or denial of regulatory approval could delay or prevent our ability to generate product revenues and to achieve profitability.

Changes in regulatory approval policies during the development period of any of our product candidates, changes in, or the enactment of, additional regulations or statutes, or changes in regulatory review practices for a submitted product application may cause a delay in obtaining approval or result in the rejection of an application for regulatory approval.

Regulatory approval, if obtained, may be made subject to limitations on the indicated uses for which we may market a product. These limitations could adversely affect our potential product revenues. Regulatory approval may also require costly post-marketing follow-up studies. In addition, the labeling, packaging, adverse event reporting, storage, advertising, promotion and record-keeping related to the product will be subject to extensive ongoing regulatory requirements. Furthermore, for any marketed product, its manufacturer and its manufacturing facilities will be subject to continual review and periodic inspections by the FDA or other regulatory authorities. Failure to comply with applicable regulatory requirements may, among other things, result in fines, suspensions of regulatory approvals, product recalls, product seizures, operating restrictions and criminal prosecution.

We do not have a sales force and do not currently have plans to develop one.

The commercial success of any of our product candidates will depend upon the strength of sales and marketing efforts for them. We do not have a sales force and have no experience in sales, marketing or distribution. To successfully commercialize our product candidates, we will need to develop such a capability ourselves or seek assistance from a third party with a large distribution system and a large direct sales force. We may be unable to put such a plan in place. In addition, if we arrange for others to market and sell our products, our revenues will depend upon the efforts of those parties. Such arrangements may not succeed. Even if one or more of our product candidates is approved for marketing, if we fail to establish adequate sales, marketing and distribution capabilities, independently or with others, our business will be materially harmed.

Our success depends in part on attracting, retaining and motivating our personnel.*

Our success depends on our continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel and on our ability to develop and maintain important relationships with leading academic institutions, clinicians and scientists.

As of November 10, 2015, we had twenty-four employees. Our success will depend on our ability to retain and motivate remaining personnel and hire additional qualified personnel when required. Competition for qualified personnel in the biotechnology field is intense. We face competition for personnel from other biotechnology and pharmaceutical companies, universities, public and private research institutions and other organizations. We also face competition from other more well-funded and well-established businesses and we may also be viewed as a riskier choice from a job stability perspective due to our relative newer status than longer existing biotech and pharmaceutical companies. We may not be able to attract and retain qualified personnel on acceptable terms given the competition for such personnel. If we are unsuccessful in our retention, motivation and recruitment efforts, we may be unable to execute our business strategy.

We must manage a geographically dispersed organization.

While we are a small company, we currently have operations in the United States, Australia and Slovenia. In the future, we may also locate facilities in other locations based on proximity to personnel with the expertise needed to research, develop and manufacture phage-based therapeutics, costs of operations or other factors. Managing our organization across multiple locations and multiple time zones may reduce our efficiency, increase our expenses and increase the risk of operational difficulties in the execution of our plans.

Risks Related to Our Financial Performance and Operations

We have incurred losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future, and our future profitability is uncertain.*

We have incurred losses in each year since our inception in 1992. Prior to our merger with Biocontrol in January 2011, our accumulated deficit was $315.5 million, and Biocontrol had an accumulated deficit of $6.9 million. Since January 2011 through September 30, 2015, we have incurred a cumulative deficit of $46.5 million, and we expect to incur losses for the foreseeable future. We have devoted, and will continue to devote for the foreseeable future, substantially all of our resources to research and development of our product candidates. For the nine months ended September 30, 2015 we had an operating loss of $7.3 million and a net income of $1.7 million, including a non-cash gain on warrant and derivative liabilities of $9.3 million. Additional information regarding our results of operations may be found in our consolidated financial statements and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Clinical trials and activities associated with discovery research are costly. We do not expect to generate any revenue from the commercial sales of our product candidates in the near term, and we expect to continue to have significant losses for the foreseeable future.

To attain ongoing profitability, we will need to develop products successfully and market and sell them effectively, or rely on other parties to do so. We cannot predict when we will achieve ongoing profitability, if at all. We have never generated revenue from the commercial sales of our product candidates, and there is no guarantee that we will be able to do so in the future. If we fail to become profitable, or if we are unable to fund our continuing losses, we would be unable to continue our research and development programs.

We may be required to make cash payments to the holders of our Series B redeemable convertible preferred stock.*

The holders of our shares of Series B redeemable convertible preferred stock (Series B) are entitled to receive accruing, cumulative dividends at the rate of 10% per annum, payable in cash at the option of the holders of two-thirds of the shares of Series B (a) when, as and if declared by our Board of Directors, (b) upon an acquisition of our company or (c) upon redemption of the Series B. In addition, if holders of Series B elect to convert their shares to common stock, or if the Series B is automatically converted to common stock in connection with a qualified public offering by us, all accrued but unpaid dividends on the Series B will become payable upon conversion. If such holders elect to receive payment for such dividends in cash, or if dividends are required to be paid upon conversion, we will have less cash available, which will have a negative effect on our operations and financial results. As of September 30, 2015, the aggregate amount of accrued but unpaid dividends on the Series B was $2.9 million.

If we fail to maintain proper and effective internal control over financial reporting, our ability to produce accurate financial statements on a timely basis could be impaired.*

We are required to maintain internal control over financial reporting adequate to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements in accordance with generally accepted accounting principles. In connection with the restatement of our consolidated financial statements for the year ended December 31, 2013 and the quarters ended March 31, 2014, June 30, 2014 and September 30, 2014, we determined that we had a material weakness as of December 31, 2014, namely that our controls over the evaluation and review of complex and non-routine transactions were not effective.

Due to this material weakness, we concluded that as of December 31, 2014, our internal control over financial reporting were not effective. Subsequent to December 31, 2014, we restated our consolidated financial statements as of December 31, 2013, March 31, 2014, June 30, 2014 and September 30, 2014 to correct for errors caused by this weakness.

We do not expect that our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. Over time, controls may become inadequate because changes in conditions or deterioration in the degree of compliance with policies or procedures may occur. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. As a result, we cannot assure you that significant deficiencies or material weaknesses in our internal control over financial reporting will not be identified in the future. A material weakness means a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the registrant’s annual or interim financial statements will not be prevented or detected on a timely basis.

If we are unable to successfully remediate any significant deficiency or material weakness in our internal control over financial reporting, identify any additional significant deficiencies or material weaknesses that may exist, or satisfy the requirements of the Sarbanes-Oxley Act, the accuracy and timing of our financial reporting may be adversely affected, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, and our stock price may decline materially as a result.

Risks Related to Our Dependence on Third Parties

We rely on third parties for aspects of product development.*

We rely on third parties such as the University of Leicester and the U.S. Army for certain aspects of product development. We are working with the University of Leicester for research and development of product candidates to treat C. difficile infections. We are working with the U.S. Army for research and development of product candidates to treat S. aureus infections, and we have an agreement with Intrexon regarding the development of bacteriophage and new strains of manufacturing hosts for our phage therapies. Because we rely on third parties to conduct these activities, we have less control over the success of these programs than we would if we were conducting them on our own. Factors beyond our control that could impact the success of these programs include the amount of resources devoted to the programs by the applicable third party, the staffing of those projects by third-party personnel, and the amount of time such personnel devote to our programs compared to other programs. Failure of our third-party collaborators to successfully complete the projects that we are working on with them could result in delays in product development and the need to expend additional resources, increasing our expenses beyond current expectations.

We will rely on third parties to conduct some of our clinical trials, and their failure to perform their obligations in a timely or competent manner may delay development and commercialization of our product candidates.

We expect to use third parties, such as clinical research organizations or the U.S. Army, to assist in conducting our clinical trials. There are numerous alternative sources to provide these services. However, we may face delays outside of our control if these parties do not perform their obligations in a timely or competent fashion or if we are forced to change service providers. This risk is heightened for clinical trials conducted outside of the United States, where it may be more difficult to ensure that clinical trials are conducted in compliance with FDA requirements. Any third-party that we hire to conduct clinical trials may also provide services to our competitors, which could compromise the performance of their obligations to us. If we experience significant delays in the progress of our clinical trials and in our plans to file New Drug Applications, the commercial prospects for product candidates could be harmed and our ability to generate product revenue would be delayed or prevented.

We will rely on the U.S. Army to conduct a Phase 1 clinical trial, and their failure to perform in a timely manner may significantly delay the Staphylococcus aureus clinical program .*

Pursuant to our Collaborative Research and Development Agreement with the United States Army Medical Research and Materiel Command and the Walter Reed Army Institute of Research, we expect to utilize U.S. Army human resources and facilities to conduct our planned Phase 1 clinical trial of AB-SA01. Due to recent outbreaks of the Ebola virus, the Army has diverted significant resources to studying this potential epidemic. As a result, the U.S. Army has advised the Company that there may be a delay in initiating the planned Phase 1 AB-SA01 study, which may significantly affect our ability to conduct this clinical trial prior to the fourth quarter of 2015.

Risks Related to Our Intellectual Property

We are dependent on patents and proprietary technology. If we fail to adequately protect this intellectual property or if we otherwise do not have exclusivity for the marketing of our products, our ability to commercialize products could suffer.

Our commercial success will depend in part on our ability to obtain and maintain patent protection sufficient to prevent others from marketing our product candidates, as well as to defend and enforce these patents against infringement and to operate without infringing the proprietary rights of others. Protection of our product candidates from unauthorized use by third parties will depend on having valid and enforceable patents cover our product candidates or their manufacture or use, or having effective trade secret protection. If our patent applications do not result in issued patents, or if our patents are found to be invalid, we will lose the ability to exclude others from making, using or selling the inventions claimed therein. We have a limited number of patents and pending patent applications.

The patent positions of biotechnology companies can be uncertain and involve complex legal and factual questions. This is due to inconsistent application of policy and changes in policy relating to examination and enforcement of biotechnology patents to date on a global scale. The laws of some countries may not protect intellectual property rights to the same extent as the laws of countries having well-established patent systems, and those countries may lack adequate rules and procedures for defending our intellectual property rights. Also, changes in either patent laws or in interpretations of patent laws may diminish the value of our intellectual property. We are not able to guarantee that all of our patent applications will result in the issuance of patents and we cannot predict the breadth of claims that may be allowed in our patent applications or in the patent applications we may license from others.

The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:

	·	we might not have been the first to make the inventions covered by each of our pending patent applications and issued patents, and we may have to participate in expensive and protracted interference proceedings to determine priority of invention;

	·	we might not have been the first to file patent applications for these inventions;

	·	others may independently develop similar or alternative product candidates to any of our product candidates that fall outside the scope of our patents;

	·	our pending patent applications may not result in issued patents;

	·	our issued patents may not provide a basis for commercially viable products or may not provide us with any competitive advantages or may be challenged by third parties;

	·	others may design around our patent claims to produce competitive products that fall outside the scope of our patents;

	·	we may not develop additional patentable proprietary technologies related to our product candidates; and

	·	we are dependent upon the diligence of our appointed agents in national jurisdictions, acting for and on our behalf, which control the prosecution of pending domestic and foreign patent applications and maintain granted domestic and foreign patents.

An issued patent does not guarantee us the right to practice the patented technology or commercialize the patented product. Third parties may have blocking patents that could be used to prevent us from commercializing our patented products and practicing our patented technology. Our issued patents and those that may be issued in the future may be challenged, invalidated or circumvented, which could limit our ability to prevent competitors from marketing the same or related product candidates or could limit the length of the term of patent protection of our product candidates. Moreover, because of the extensive time required for development, testing and regulatory review of a potential product, it is possible that, before any of our product candidates can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantage of the patent. Patent term extensions may not be available for these patents.

We rely on trade secrets and other forms of non-patent intellectual property protection. If we are unable to protect our trade secrets, other companies may be able to compete more effectively against us.

We rely on trade secrets to protect certain aspects of our technology, including our proprietary processes for manufacturing and purifying bacteriophages. Trade secrets are difficult to protect, especially in the pharmaceutical industry, where much of the information about a product must be made public during the regulatory approval process. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully disclose our information to competitors. Enforcing a claim that a third party illegally obtained and is using our trade secret information is expensive and time-consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing to or may not protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.

If we are sued for infringing intellectual property rights of third parties or if we are forced to engage in an interference proceeding, it will be costly and time-consuming, and an unfavorable outcome in that litigation or interference would have a material adverse effect on our business.

Our ability to commercialize our product candidates depends on our ability to develop, manufacture, market and sell our product candidates without infringing the proprietary rights of third parties. Numerous United States and foreign patents and patent applications, which are owned by third parties, exist in the general field of anti-infective products or in fields that otherwise may relate to our product candidates. If we are shown to infringe, we could be enjoined from use or sale of the claimed invention if we are unable to prove that the patent is invalid. In addition, because patent applications can take many years to issue, there may be currently pending patent applications, unknown to us, which may later result in issued patents that our product candidates may infringe, or which may trigger an interference proceeding regarding one of our owned or licensed patents or applications. There could also be existing patents of which we are not aware that our product candidates may inadvertently infringe or which may become involved in an interference proceeding.

The biotechnology and pharmaceutical industries are characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement. For so long as our product candidates are in clinical trials, we believe our clinical activities fall within the scope of the exemptions provided by 35 U.S.C. Section 271(e) in the United States, which exempts from patent infringement liability activities reasonably related to the development and submission of information to the FDA. As our clinical investigational drug product candidates progress toward commercialization, the possibility of a patent infringement claim against us increases. While we attempt to ensure that our active clinical investigational drugs and the methods we employ to manufacture them, as well as the methods for their use we intend to promote, do not infringe other parties’ patents and other proprietary rights, we cannot be certain they do not, and competitors or other parties may assert that we infringe their proprietary rights in any event.

We may be exposed to future litigation based on claims that our product candidates, or the methods we employ to manufacture them, or the uses for which we intend to promote them, infringe the intellectual property rights of others. Our ability to manufacture and commercialize our product candidates may depend on our ability to demonstrate that the manufacturing processes we employ and the use of our product candidates do not infringe third-party patents. If third-party patents were found to cover our product candidates or their use or manufacture, we could be required to pay damages or be enjoined and therefore unable to commercialize our product candidates, unless we obtained a license. A license may not be available to us on acceptable terms, if at all.

Risks Related to Our Industry

If our competitors are able to develop and market products that are more effective, safer or more affordable than ours, or obtain marketing approval before we do, our commercial opportunities may be limited.

Competition in the biotechnology and pharmaceutical industries is intense and continues to increase. Some companies that are larger and have significantly more resources than we do are aggressively pursuing antibacterial development programs, including traditional therapies and therapies with novel mechanisms of action. In addition, other companies are developing phage-based products for non-therapeutic uses, and may elect to use their expertise in phage development and manufacturing to try to develop products that would compete with ours.

We also face potential competition from academic institutions, government agencies and private and public research institutions engaged in the discovery and development of drugs and therapies. Many of our competitors have significantly greater financial resources and expertise in research and development, preclinical testing, conducting clinical trials, obtaining regulatory approvals, manufacturing, sales and marketing than we do. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established pharmaceutical companies.

Our competitors may succeed in developing products that are more effective, have fewer side effects and are safer or more affordable than our product candidates, which would render our product candidates less competitive or noncompetitive. These competitors also compete with us to recruit and retain qualified scientific and management personnel, establish clinical trial sites and patient registration for clinical trials, as well as to acquire technologies and technology licenses complementary to our programs or advantageous to our business. Moreover, competitors that are able to achieve patent protection, obtain regulatory approvals and commence commercial sales of their products before we do, and competitors that have already done so, may enjoy a significant competitive advantage.

In July 2012, the Food and Drug Administration Safety and Innovation Act was passed, which included the Generating Antibiotics Incentives Now Act, or the GAIN Act. The GAIN Act is intended to provide incentives for the development of new, qualified infectious disease products. These incentives may result in more competition in the market for new antibiotics, and may cause pharmaceutical and biotechnology companies with more resources than we have to shift their efforts towards the development of products that could be competitive with our product candidates.

There is a substantial risk of product liability claims in our business. If we do not obtain sufficient liability insurance, a product liability claim could result in substantial liabilities.*

Our business exposes us to significant potential product liability risks that are inherent in the development, manufacturing and marketing of human therapeutic products. Regardless of merit or eventual outcome, product liability claims may result in:

	·	delay or failure to complete our clinical trials;

	·	withdrawal of clinical trial participants;

	·	decreased demand for our product candidates;

	·	injury to our reputation;

	·	litigation costs;

	·	substantial monetary awards against us; and

	·	diversion of management or other resources from key aspects of our operations.

If we succeed in marketing products, product liability claims could result in an FDA investigation of the safety or efficacy of our products, our manufacturing processes and facilities or our marketing programs. An FDA investigation could also potentially lead to a recall of our products or more serious enforcement actions, or limitations on the indications, for which they may be used, or suspension or withdrawal of approval.

We have product liability insurance that covers our clinical trials up to a $10 million annual per claim and aggregate limit. We intend to expand our insurance coverage to include the sale of commercial products if marketing approval is obtained for our product candidates or any other compound that we may develop. However, insurance coverage is expensive and we may not be able to maintain insurance coverage at a reasonable cost or at all, and the insurance coverage that we obtain may not be adequate to cover potential claims or losses.

Even if we receive regulatory approval to market our product candidates, the market may not be receptive to our product candidates upon their commercial introduction, which would negatively affect our ability to achieve profitability.

Our product candidates may not gain market acceptance among physicians, patients, healthcare payors and the medical community. The degree of market acceptance of any approved products will depend on a number of factors, including:

	·	the effectiveness of the product;

	·	the prevalence and severity of any side effects;

	·	potential advantages or disadvantages over alternative treatments;

	·	relative convenience and ease of administration;

	·	the strength of marketing and distribution support;

	·	the price of the product, both in absolute terms and relative to alternative treatments; and

	·	sufficient third-party coverage or reimbursement.

If our product candidates receive regulatory approval but do not achieve an adequate level of acceptance by physicians, healthcare payors and patients, we may not generate product revenues sufficient to attain profitability.

Foreign governments tend to impose strict price controls, which may adversely affect our future profitability.

In some foreign countries, particularly in the European Union, prescription drug pricing is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our profitability will be negatively affected.

We may incur significant costs complying with environmental laws and regulations, and failure to comply with these laws and regulations could expose us to significant liabilities.

Our research and development activities use biological and hazardous materials that are dangerous to human health and safety or the environment. We are subject to a variety of federal, state and local laws and regulations governing the use, generation, manufacture, storage, handling and disposal of these materials and wastes resulting from these materials. We are also subject to regulation by the Occupational Safety and Health Administration, or OSHA, state and federal environmental protection agencies and to regulation under the Toxic Substances Control Act. OSHA, state governments or federal Environmental Protection Agency, or EPA, may adopt regulations that may affect our research and development programs. We are unable to predict whether any agency will adopt any regulations that could have a material adverse effect on our operations. We have incurred, and will continue to incur, capital and operating expenditures and other costs in the ordinary course of our business in complying with these laws and regulations.

Although we believe our safety procedures for handling and disposing of these materials comply with federal, state and local laws and regulations, we cannot entirely eliminate the risk of accidental injury or contamination from the use, storage, handling or disposal of hazardous materials. In the event of contamination or injury, we could be held liable for any resulting damages, and any liability could significantly exceed our insurance coverage.

Risks Related to Our Common Stock

The price of our common stock has been and may continue to be volatile.*

The stock markets in general, the markets for biotechnology stocks and, in particular, the stock price of our common stock, have experienced extreme volatility. The market for our common shares is characterized by significant price volatility when compared to the shares of larger, more established companies that trade on a national securities exchange and have large public floats, and we expect that our share price will continue to be more volatile than the shares of such larger, more established companies for the indefinite future. The volatility in our share price is attributable to a number of factors. First, our common shares are, compared to the shares of such larger, more established companies, sporadically and thinly traded. As a consequence of this limited liquidity, the trading of relatively small quantities of shares by our stockholders may disproportionately influence the price of those shares in either direction. The price for our shares could, for example, decline precipitously in the event that a large number of our common shares are sold on the market without commensurate demand. Secondly, we are a speculative or “risky” investment due to the early stage of our drug development programs and our lack of profits to date, and uncertainty of future market acceptance for our potential products. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a larger, more established company that has a large public float and broader stockholder base. Many of these factors are beyond our control and may decrease the market price of our common shares, regardless of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our common shares will be at any time, including as to whether our common shares will sustain their current market prices, or as to what effect that the sale of shares or the availability of common shares for sale at any time will have on the prevailing market price.

Price declines in our common stock could also result from general market and economic conditions and a variety of other factors, including:

	·	adverse results or delays in our clinical trials;

	·	adverse actions taken by regulatory agencies with respect to our product candidates, clinical trials or the manufacturing processes of our product candidates;

	·	announcements of technological innovations, patents or new products by our competitors;

	·	regulatory developments in the United States and foreign countries;

	·	any lawsuit involving us or our product candidates;

	·	announcements concerning our competitors, or the biotechnology or pharmaceutical industries in general;

	·	developments concerning any strategic alliances or acquisitions we may enter into;

	·	actual or anticipated variations in our operating results;

	·	changes in recommendations by securities analysts or lack of analyst coverage;

	·	deviations in our operating results from the estimates of analysts;

	·	sales of our common stock by our executive officers, directors and five percent stockholders or sales of substantial amounts of common stock; and

	·	loss of any of our key scientific or management personnel.

In the past, following periods of volatility in the market price of a particular company’s securities, litigation has often been brought against that company. Any such lawsuit could consume resources and management time and attention, which could adversely affect our business.

A significant number of shares of our common stock are subject to issuance upon exercise or conversion of outstanding warrants, options and convertible securities, which upon such exercise or conversion may result in dilution to our security holders.*

As of September 30, 2015, we have outstanding warrants to purchase 1,209,681 shares of our common stock at an average exercise price of $9.90 per share, and outstanding options to purchase 635,401 shares of our common stock at an average exercise price of $9.06 per share. The exercise price and/or the number of shares of common stock issuable upon exercise of the warrants may be adjusted in certain circumstances, including certain issuances of securities at a price equal to or less than the then current exercise price, subdivisions and stock splits, stock dividends, combinations, reorganizations, reclassifications, consolidations, mergers or sales of properties and assets and upon the issuance of certain assets or securities to holders of our common stock, as applicable. Although we cannot determine at this time which of these warrants will ultimately be exercised, it is reasonable to assume that such warrants will be exercised only if the exercise price is below the market price of our common stock. To the extent the warrants are exercised, additional shares of our common stock will be issued that will be eligible for resale in the public market, which will result in dilution to our security holders. The issuance of additional securities could also have an adverse effect on the market price of our common stock.

As of September 30, 2015, we have 7,527,853 outstanding shares of Series B redeemable convertible preferred stock. Each share of Series B redeemable convertible preferred stock is convertible into 0.2 shares of common stock and accrues dividends at the rate of 10% per year. At September 30, 2015, these shares would be convertible into 1,505,571 shares of common stock and the accrued dividends on these shares totaled $2.5 million.

Our principal stockholders and management beneficially own a majority of our stock and will be able to exert significant control over matters subject to stockholder approval. *

As of September 30, 2015, our executive officers, directors, 5% stockholders and their affiliates beneficially owned a majority of our outstanding voting stock. Therefore, these stockholders will have the ability to influence us through this ownership position. These stockholders may be able to determine all matters requiring stockholder approval. For example, these stockholders, acting together, may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may believe are in your best interest as one of our stockholders.

Our current articles of incorporation and bylaws and Washington law provisions that could discourage another company from acquiring us and may prevent attempts by our stockholders to replace or remove our current management.*

Provisions of Washington law and our current articles of incorporation and bylaws may discourage, delay or prevent a merger or acquisition that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace or remove our board of directors. These provisions include:

	·	authorizing the issuance of “blank check” preferred stock without any need for action by stockholders;

	·	providing for a classified board of directors with staggered terms;

	·	requiring supermajority stockholder voting to effect certain amendments to our articles of incorporation and bylaws;

	·	eliminating the ability of stockholders to call special meetings of stockholders;

	·	prohibiting stockholder action by written consent; and

	·	establishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings.

In addition, because we are incorporated in Washington, we are governed by the provisions of Chapter 23B.19 of the Washington Business Corporation Act, which, among other things, restricts the ability of shareholders owning ten percent (10%) or more of our outstanding voting stock from merging or combining with us. These provisions could discourage potential acquisition attempts and could reduce the price that investors might be willing to pay for shares of our common stock in the future and result in the market price being lower than it would without these provisions.

Although we believe these provisions collectively provide for an opportunity to receive higher bids by requiring potential acquirors to negotiate with our board of directors, they would apply even if an offer may be considered beneficial by some shareholders. In addition, these provisions may frustrate or prevent any attempts by our shareholders to replace or remove our current management by making it difficult for shareholders to replace members of our board of directors, which is responsible for appointing the members of our management.

We have never paid dividends on our common stock, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future.*

We have never declared or paid cash dividends on our common stock. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. In addition, pursuant to our Articles of Incorporation we are not permitted to pay cash dividends on our common stock until all accrued dividends on the outstanding Series B shares have been paid in full. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business. As a result, capital appreciation, if any, of our common stock will be our stockholders’ sole source of gain for the foreseeable future.

Maintaining and improving our financial controls and the requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.*

As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act and the rules of the NYSE MKT. The requirements of these rules and regulations increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and place strain on our personnel, systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and financial condition.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. Ensuring that we have adequate internal financial and accounting controls and procedures in place is a costly and time-consuming effort that needs to be re-evaluated frequently.

We currently do not have an internal audit group, and we may need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. Implementing any appropriate changes to our internal controls may require specific compliance training for our directors, officers and employees, entail substantial costs to modify our existing accounting systems, and take a significant period of time to complete. Such changes may not, however, be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and could materially impair our ability to operate our business. Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent fraud.

In accordance with NYSE MKT rules, we are required to maintain a majority independent board of directors. The various rules and regulations applicable to public companies make it more difficult and more expensive for us to maintain directors’ and officers’ liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to maintain coverage. If we are unable to maintain adequate directors’ and officers’ insurance, our ability to recruit and retain qualified officers and directors will be significantly curtailed.

If securities or industry analysts do not publish research or publish unfavorable research about our business, our stock price and trading volume could decline.*

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We currently have two security analysts and may never obtain additional research coverage by other securities and industry analysts. If no additional securities or industry analysts commence coverage of our company, the trading price for our stock could be negatively impacted. If we obtain additional securities or industry analyst coverage and if one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to “emerging growth companies” will make our common stock less attractive to investors.*

We are an “emerging growth company,” as defined under the JOBS Act. For so long as we are an “emerging growth company,” we intend to take advantage of certain exemptions from reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

We could be an “emerging growth company” for up to five years, although we may lose such status earlier, depending on the occurrence of certain events. We will remain an “emerging growth company” until the earliest to occur of (i) the last day of the fiscal year (a) following the fifth anniversary of our initial public offering conducted after we became a reporting company under the Exchange Act pursuant to our registration statement on Form 10 (File No. 000-23930), (b) in which we have total annual gross revenue of at least $1.0 billion or (c) in which we are deemed to be a “large accelerated filer” under the Exchange Act, which means that the market value of our common stock that is held by non-affiliates exceeds $700 million as of June 30 ^th of the prior year, and (ii) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

We cannot predict if investors will find our common stock less attractive or our company less comparable to certain other public companies because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

Under the JOBS Act, “emerging growth companies” can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards, and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not “emerging growth companies.”

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Pursuant to our Articles of Incorporation, we are not permitted to pay cash dividends on our common stock until all accrued dividends on the outstanding Series B shares have been paid in full.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

See the Exhibit Index following the signature page of this report, which is incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	AMPLIPHI BIOSCIENCES CORPORATION

Date: November 16, 2015		By	/s/ Michael Scott Salka
			Name: Michael Scott Salka
			Title: Chief Executive Officer
			(Principal Executive Officer)

		By	/s/ David E. Bosher
			Name: David E. Bosher
			Title: Chief Financial Officer
			(Principal Financial Officer)

EXHIBIT INDEX

Number		Description
	3.1	Amended and Restated Articles of Incorporation of the Registrant, as amended.

	3.2	Amended and Restated Bylaws of the Registrant, as amended.

	4.1	Reference is made to Exhibits 3.1 and 3.2.
	4.2	Specimen stock certificate evidencing shares of common stock (incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form 10 (File No. 000-23930), filed with the SEC on December 16, 2013).

	4.3	Form of Warrant to Purchase Shares of Common Stock issued to purchasers in December 2013 private placement (incorporated by reference to Exhibit 4.2 to the Registrant’s Registration Statement on Form 10 (File No. 000-23930), filed with the SEC on December 16, 2013).

	4.4	Registration Rights Agreement, dated December 16, 2013, by and among the Registrant and certain purchasers of the Registrant’s Series B Convertible Preferred Stock (incorporated by reference to Exhibit 4.4 to the Registrant’s Registration Statement on Form 10 (File No. 000-23930) , filed with the SEC on December 16, 2013).

	4.5	Subscription Agreement to Purchase Series B Preferred Stock and Warrants, dated December 16, 2013, by and between the Registrant and the purchasers named therein (incorporated by reference to Exhibit 4.5 to the Registrant’s Registration Statement on Form 10 (File No. 000-23930), filed with the SEC December 16, 2013).

	4.6	Subscription Agreement to Purchase Common Stock, dated March 10, 2015, by and between the Registrant and the purchasers named therein (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on March 19, 2015).

	4.7	Form of Common Stock Warrant issued to purchasers in March 2015 private placement (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed with the SEC on March 19, 2015).

	4.8	Registration Rights Agreement, dated March 10, 2015, by and between the Registrant and purchasers of common stock in March 2015 private placement (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, filed with the SEC on March 19, 2015).

	10.1+	Consulting Agreement, dated September 3, 2015, by and between the Registrant and Wendy S. Johnson.

	31.1	Certification of the Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a).

	31.2	Certification of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a).

	32.1	Certification of the Principal Executive Officer Required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350.

	32.2	Certification of the Principal Financial Officer Required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350.

	101.INS	XBRL Instance Document.

	101.SCH	XBRL Taxonomy Extension Schema Document.

	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.

	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.

	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.

	101.LAB	XBRL Taxonomy Extension Label Linkbase Document.

+ Indicates management contractor or compensatory plan.

Exhibit 3.1

TARGETED GENETICS CORPORATION

AMENDED AND RESTATED ARTICLES OF
INCORPORATION

Targeted Genetics Corporation, a Washington corporation, by its Vice President Finance, hereby submits the following Restated Articles of Incorporation of said corporation pursuant to the provisions of RCW 23B.10.070. These Restated Articles of Incorporation correctly set forth the corresponding provisions of the Articles of Incorporation as heretofore amended and restated and supersede the original Articles of Incorporation and all amendments and prior restatements thereto.

ARTICLE 1. NAME

The name of this corporation shall be Targeted Genetics Corporation.

ARTICLE 2. DURATION

This corporation is organized under the Washington Business Corporation Act and shall have perpetual existence.

ARTICLE 3. PURPOSE AND POWERS

The purpose and powers of this corporation are as follows:

3.1 To engage in the business of biotechnology research and development.

3.2 To engage in any and all activities that may, in the judgment of the Board of Directors, at any time be incidental or conducive to the attainment of the foregoing purpose.

3.3 To exercise any and all powers that a corporation formed under the Washington Business Corporation Act, or any amendment thereto or substitute therefor, may at the time lawfully exercise.

ARTICLE 4. CAPITAL STOCK

4.1 Authorized Capital .

The total authorized stock of this corporation shall consist of 445,000,000 shares of Common Stock, par value $.01 per share, and 10,000,000 shares of Preferred Stock, par value $.01 per share.

4.2 Issuance of Preferred Stock in Series .

The Preferred Stock may be issued from time to time in one or more series, the shares of each series to have such voting powers, full or limited, and such designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof as are stated and expressed herein or in the resolution or resolutions providing for the issuance of such series adopted by the Board of Directors.

4.2.1 Authority of the Board of Directors

Authority is hereby expressly granted to the Board of Directors of this corporation, subject to the provisions of this Article 4 and to the limitations prescribed by law, to authorize the issuance of one or more series of Preferred Stock, and with respect to each such series to fix by resolution or resolutions providing for the issuance of each series the number of shares of such series, the voting powers, full or limited, if any, of the shares of such series and the designations, preferences and relative, participating, optional or other special rights and the qualifications, limitations or restrictions thereof. The authority of the Board of Directors with respect to each series of Preferred Stock shall include, but shall not be limited to, the determination or fixing of the following:

(a) The number of shares of such series;

(b) The designation of such series:

(c) The dividends of such series, the conditions and dates upon which such dividends shall be payable, the relation which such dividends shall bear to the dividends payable on any other class or classes of stock and whether such dividends shall be cumulative or noncumulative:

(d) Whether the shares of such series shall be subject to redemption by this corporation and, if made subject to such redemption, the times, prices, rates, adjustments, and other terms and conditions of such redemption;

(e) The terms and amounts of any sinking fund provided for the purchase or redemption of the shares of such series;

(f) Whether or not the shares of such series shall he convertible into or exchangeable for shares of any other class or classes or of any other series of any class or classes of stock of this corporation and, if provision be made for conversion or exchange, the times, prices, rates, adjustments, and other terms and conditions of such conversion or exchange;

(g) The extent, if any, to which the holders of the shares of such series shall be entitled to vote with respect to the election of directors or otherwise, including the right to elect a specified number or class of directors, the number or percentage of votes required for certain actions, and the extent to which a vote by class or series shall be required for certain actions:

(h) The restrictions, if any, on the issue or reissue of any Preferred Stock;

(i) The rights of the holders of the shares of such series upon the dissolution of, or upon the distribution of the assets of this corporation; and

(j) The extent, if any, to which any committee of the Board of Directors may fix the designations and any of the preferences or rights of the shares of such series relating to dividends, redemption, dissolution, any distribution of assets of this corporation or the conversion into or exchange of such shares for shares of any other class or classes of stock of this corporation or any other series of the same or any other class or classes of stock of this corporation, or fix the number of shares of any such series or authorize the increase or decrease in the shares of such series.

4.2.2 Dividends

Subject to any preferential rights granted for any series of Preferred Stock, the holders of shares of the Common Stock shall be entitled to receive dividends out of the funds of this corporation legally available therefor, at the rate and at the time or times, whether cumulative or noncumulative, as may be provided by the Board of Directors. The holders of shares of the Preferred Stock shall be entitled to receive dividends to the extent provided herein or by the Board of Directors in designating the particular series of Preferred Stock. The holders of shares of the Common Stock shall not be entitled to receive any dividends thereon other than the dividends referred to in this section.

4.2.3 Voting

The holders of shares of the Common Stock, on the basis of one vote per share, shall have the right to vote for the election of members of the Board of Directors of this corporation and the right to vote on all other matters, except those matters on which a separate class of this corporation’s shareholders vote by class or series to the exclusion of the holders of the shares of the Common Stock. To the extent provided herein or by resolution or resolutions of the Board of Directors providing for the issue of a series of Preferred Stock, the holders of each such series shall have the right to vote for the election of members of the Board of Directors of this corporation and the right to vote on all other matters, except those matters in which a separate class of this corporation’s shareholders vote by class or series to the exclusion of the holders of the shares of such series.

4.2.4 Issuance of Shares

This corporation may from time to time issue and dispose of any of the authorized and unissued shares of the Common Stock or the Preferred Stock for such consideration as may be fixed from time to time by the Board of Directors, without action by the shareholders. The Board of Directors may provide for payment therefor to be received by this corporation in cash, property, services or such other consideration as is approved by the Board of Directors. Any and all such shares of the Common Stock or the Preferred Stock of this corporation, the issuance of which has been so authorized, and for which consideration so fixed by the Board of Directors has been paid or delivered, shall be deemed fully paid stock and shall not be liable to any further call or assessment thereon.

4.3 Designation of Rights and Preferences of Series A Participating Cumulative Preferred Stock .

The following series of Preferred Stock is hereby designated, which series shall have the rights, preferences and privileges and limitations set forth below:

4.3.1 Designation of Series A Participating Cumulative Preferred Stock

The shares of such series shall be designated the “Series A Participating Cumulative Preferred Stock” (the “Series A Preferred Stock”), par value $.01 per share. The number of shares constituting the Series A Preferred Stock shall be 180,000; provided , however , if more than a total of 180.000 shares of Series A Preferred Stock shall be issuable upon the exercise of Rights (the “Rights”) issued pursuant to the Rights Agreement dated as of October 17, 1996 between this corporation and ChaseMellon Shareholder Services, as Rights Agent, as amended (the “Rights Agreement”), this corporation’s Board of Directors, pursuant to Section 23B.06.020 of the Revised Code of Washington, shall direct by resolution or resolutions that Articles of Amendment be properly executed and filed with the Washington Secretary of State providing for the total number of shares of Series A Preferred Stock authorized for issuance to be increased (to the extent that the Restated Articles of Incorporation then permits) to the largest number of whole shares (rounded up to the nearest whole number) issuable upon exercise of such Rights.

In addition, such number of shares may be decreased by resolution of the Board of Directors; provided. however, that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by this corporation convertible into Series A Preferred Stock.

4.3.2 Dividends and Distributions

(a) Subject to the prior and superior rights of the holders of shares of any other series of Preferred Stock or other class of capital stock of this corporation ranking prior and superior to the shares of Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock shall be entitled to receive, when, as, and if declared by the Board of Directors, out of the assets of this corporation legally available therefor, quarterly dividends payable in cash on the last day of each fiscal quarter in each year, or such other dates as this corporation’s Board of Directors shall approve (each such date being referred to in this Designation as a “Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or a fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (i) $.01 and (ii) the Formula Number (as hereinafter defined) then in effect times the cash dividends then to be paid on each share of Common Stock. In addition, if this corporation shall pay any dividend or make any distribution on the Common Stock payable in assets, securities or other forms of noncash consideration (other than dividends or distributions solely in shares of Common Stock), then, in each such case, this corporation shall simultaneously pay or make on each outstanding whole share of Series A Preferred Stock a dividend or distribution in like kind equal to the Formula Number then in effect times such dividend or distribution on each share of Common Stock. As used in this Designation and in the Rights Agreement, the “Formula Number” shall be 100; provided , however , that if at any time after October 17, 1996 this corporation shall (i) declare or pay any dividend on the Common Stock payable in shares of Common Stock or make any distribution on the Common Stock in shares of Common Stock, (ii) subdivide (by a stock split or otherwise) the outstanding shares of Common Stock into a larger number of shares of Common Stock. or (iii) combine (by a reverse stock split or otherwise) the outstanding shares of Common Stock into a smaller number of shares of Common Stock, then in each such event the Formula Number shall be adjusted to a number determined by multiplying the Formula Number in effect immediately prior to such event by a fraction, the numerator of which is the number of shares of Common Stock that are outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that are outstanding immediately prior to such event (and rounding the result to the nearest whole number); and provided further , that if at any time after October 17, 1996 this corporation shall issue any shares of its capital stock in a merger, reclassification or change of the outstanding shares of Common Stock, then in each such event the Formula Number shall be appropriately adjusted to reflect such merger, reclassification or change so that each share of Preferred Stock continues to be the economic equivalent of a Formula Number of shares of Common Stock prior to such merger, reclassification or change.

(b) This corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in Section 4.3.2(a) immediately prior to or at the same time it declares a dividend or distribution on the Common Stock (other than a dividend or distribution solely in shares of Common Stock); provided , however , that in the event no dividend or distribution (other than a dividend or distribution in shares of Common Stock) shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $.01 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. This corporation’s Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a dividend or distribution declared thereon, which record date shall be the same as the record date for any corresponding dividend or distribution on the Common Stock and which shall not be more than 60 days prior to the date fixed for payment thereof.

(c) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from and after the Quarterly Dividend Payment Date next preceding the date of original issue of such shares of Series A Preferred Stock; provided , however , that dividends on such shares that are originally issued after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend on or prior to the next succeeding Quarterly Dividend Payment Date shall begin to accrue and be cumulative from and after such Quarterly Dividend Payment Date. Notwithstanding the foregoing, dividends on shares of Series A Preferred Stock that are originally issued prior to the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend on or prior to the first Quarterly Dividend Payment Date shall be calculated as if cumulative from and after the last day of the fiscal quarter (or such other Quarterly Dividend Payment Date as this corporation’s Board of Directors shall approve) next preceding the date of original issuance of such shares. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding.

(d) So long as any shares of Series A Preferred Stock are outstanding, no dividends or other distributions shall be declared, paid or distributed, or set aside for payment or distribution, on the Common Stock unless, in each case, the dividend required by this Section 4.3.2 to be declared on the Series A Preferred Stock shall have been declared.

(e) The holders of shares of Series A Preferred Stock shall not be entitled to receive any dividends or other distributions except as provided in this Designation.

4.3.3 Voting Rights

The holders of shares of Series A Preferred Stock shall have the following voting rights:

(a) Each holder of Series A Preferred Stock shall be entitled to a number of votes equal to the Formula Number then in effect for each share of Series A Preferred Stock held of record on each matter on which holders of the Common Stock or shareholders generally are entitled to vote, multiplied by the maximum number of votes per share that any holders of the Common Stock or shareholders generally then have with respect to such matter (assuming any holding period or other requirement to vote a greater number of shares is satisfied).

(b) Except as otherwise provided in this-Designation or by applicable law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of this corporation having general voting rights shall vote together as one class for the election of directors of this corporation and on all other matters submitted to a vote of shareholders of this corporation.

(c) Except as provided in this Designation or by applicable law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth in this Designation) for authorizing or taking any corporate action.

4.3.4 Certain Restrictions

(a) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 4.3.2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall, have been paid in full, this corporation shall not:

(i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock;

(ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;

(iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock; provided , however , that this corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of this corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or (iv) redeem or purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by this corporation’s Board of Directors) to all holders of such shares upon such terms as this corporation’s Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.

(b) This corporation shall not permit any subsidiary of this corporation to purchase or otherwise acquire for consideration any shares of stock of this corporation unless this corporation could, under paragraph (a) of this Section 4.3.4, purchase or otherwise acquire such shares at such time and in such manner.

4.3.5 Liquidation Rights

Upon the liquidation, dissolution or winding up of this corporation, whether voluntary or involuntary, no distribution shall be made to (a) the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received an amount equal to the greater of (i) $.01 per share and (ii) the accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, plus an aggregate amount per share equal to the Formula Number then in effect times the aggregate amount to be distributed per share to holders of Common Stock or (b) the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock. except distributions made ratably on the Series A Preferred Stock and all other such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up.

4.3.6 Consolidation, Merger, etc.

In case this corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the then outstanding shares of Series A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share equal to the Formula Number then in effect times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is exchanged or changed. In the event both this Section 4.3.6 and Section 4.3.2 appear to apply to a transaction, this Section 4.3.6 will control.

4.3.7 No Redemption; No Sinking Fund

(a) The shares of Series A Preferred Stock shall not be subject to redemption by this corporation or at the option of any holder of Series A Preferred Stock; provided , however , that this corporation may purchase or otherwise acquire outstanding shares of Series A Preferred Stock in the open market or by offer to any holder or holders of shares of Series A Preferred Stock.

(b) The shares of Series A Preferred Stock shall not be subject to or entitled to the operation of a retirement or sinking fund.

4.3.8 Ranking

The Series A Preferred Stock shall rank junior to all other series of Preferred Stock of this corporation, unless this corporation’s Board of Directors shall specifically determine otherwise in fixing the powers, preferences and relative, participating, optional and other special rights of the shares of such series and the qualifications, limitations and restrictions thereof.

4.3.9 Fractional Shares

The Series A Preferred Stock shall be issuable upon exercise of the Rights issued pursuant to the Rights Agreement in whole shares or in any fractional share that is one one-hundredth (1/100th) of a share or any integral multiple of such fraction, and shall entitle the holder, in proportion to such holder’s fractional shares, to receive dividends, exercise voting rights, participate in distributions and have the benefit of all other rights of holders of Series .A Preferred Stock. In lieu of fractional shares, this corporation, prior to the first issuance of a share or a fractional share of Series A Preferred Stock, may elect to (a) make a cash payment as provided in the Rights Agreement for a fractional share other than one one-hundredth (1/100th) of a share or any integral multiple thereof or (b) issue depository receipts evidencing such authorized fractional share of Series A Preferred Stock pursuant to an appropriate agreement between this corporation and a depository selected by this corporation; provided , however that such agreement shall provide that the holders of such depository receipts shall have all the rights, privileges and preferences to which they are entitled as holders of the Series A Preferred Stock.

4.3.10 Reacquired Shares

Any shares of Series A Preferred Stock purchased or otherwise acquired by this corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but. unissued shares of Preferred Stock, without designation as to series until such shares are once more designated as part of a particular series by this corporation’s Board of Directors pursuant to the provisions of Article 4 of the Restated Articles of Incorporation.

4.3.11 Amendment

None of the powers, preferences and relative, participating, optional and other special rights of the Series A Preferred Stock as provided in this Designation or in the Restated Articles of Incorporation shall be amended in any manner that would alter or change the powers, preferences, rights or privileges of the holders of Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least 66-2/3% of the outstanding shares of Series A Preferred Stock, voting as a separate class.

ARTICLE 5. PREEMPTIVE RIGHTS

No preemptive rights shall exist with respect to shares of stock or securities convertible into shares of stock of this corporation.

ARTICLE 6. CUMULATIVE VOTING

The right to cumulate votes in the election of Directors shall not exist with respect to shares of stock of this corporation.

ARTICLE 7. BYLAWS

The Board of Directors shall have the power to adopt, amend or repeal the Bylaws of this corporation subject to approval by a majority of the Continuing Directors (as defined in Article 13); provided, however, the Board of Directors may not repeal or amend any bylaw that the shareholders have expressly provided may not be amended or repealed by the Board of Directors. The shareholders shall also have the power to adopt, amend or repeal the Bylaws of this corporation by the affirmative vote of the holders of not less than two-thirds of the outstanding shares and to the extent, if any, provided by resolution or resolutions of the Board of Directors providing for the issuance of a series of common or Preferred Stock, not less than two-thirds of the outstanding shares entitled to vote thereon, voting as a class.

ARTICLE 8. REGISTERED OFFICE AND AGENT

The name of the registered agent of this corporation and the address of its current registered office are as follows:

National Registered Agents, Inc.
1780 Barnes Blvd. S.W. Bldg. G
Tumwater, WA 98512-0410

ARTICLE 9. DIRECTORS

The number of Directors of this corporation shall be determined in the manner provided by the Bylaws and may be increased or decreased from time to time in the manner provided therein. The Board of Directors shall be divided into three classes, with such classes to be as equal in number as may be possible, with any Director or Directors in excess of the number divisible by three being assigned to Class 3 and Class 2, as appropriate. At each annual meeting of shareholders, the number of Directors equal to the number of Directors in the class whose term expires at the time of such meeting shall be elected to serve until the third ensuing annual meeting of shareholders. Notwithstanding any of the foregoing provisions of this Article 9, Directors shall serve until their successors are elected and qualified or until their earlier death, resignation or removal from office, or until there is a decrease in the number of Directors.

The Directors of this corporation may be removed only for cause by the holders of not less than two-thirds of the shares entitled to elect the Director or Directors whose removal is sought in the manner provided by the Bylaws.

ARTICLE 10. AMENDMENTS TO ARTICLES OF INCORPORATION

This corporation reserves the right to amend or repeal, by the affirmative vote of the holders of a majority of the outstanding shares and, to the extent, if any, provided by resolution or resolutions of the Board of Directors providing for the issuance of a series of Common or Preferred stock, a majority of the outstanding shares entitled to vote thereon, voting as a class, any of the provisions contained in these Articles of Incorporation; provided, however, that amendment or repeal of Article 7, Article 9, Article 10, Article 12 or Article 13 shall require the affirmative vote of the holders of two-thirds of the outstanding shares. The rights of the shareholders of this corporation are granted subject to this reservation; provided, however, that the holders of the outstanding shares of a class shall be entitled to vote as a class upon a proposed amendment if the amendment would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class, or alter or change the powers, preferences or special rights of the shares of such class so as to affect them -adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but shall not affect the entire class, then only the shares of the series so affected by the amendment shall be considered as a separate class for the purposes of this Article 10. Notwithstanding the provisions of this Article 10, the number of authorized shares of any such class or classes of stock may be increased by the affirmative vote of the holders of a majority of the outstanding shares entitled to rote thereon or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the outstanding shares entitled to vote thereon, if so provided in any amendment which created such class or classes of stock or which was adopted prior to the issuance of any shares of such class or classes of stock, or in any amendment which was authorized by a resolution or resolutions adopted by the affirmative vote of the holders of a majority of such class or classes of stock.

ARTICLE 11. LIMITATION OF DIRECTOR LIABILITY

To the full extent that the Washington Business Corporation Act, as it exists on the date hereof or may hereafter be amended, permits the limitation or elimination of the liability of Directors, a Director of this corporation shall not be liable to this corporation or its shareholders for monetary damages for conduct as a Director. Any amendments to or repeal of this Article 11 shall not adversely affect any right or protection of a Director of this corporation for or with respect to any acts or omissions of such Director occurring prior to such amendment or repeal.

ARTICLE 12. SPECIAL MEETINGS OF SHAREHOLDERS

The Chairman of the Board of Directors, the President or the Board of Directors may call special meetings of the shareholders for any purpose. Further, a special meeting of the shareholders shall be held if the holders of not less than thirty percent (30%) of all the votes entitled to be cast on any issue proposed to be considered at such special meeting have dated, signed and delivered to the Secretary one or more written demands for such meeting, describing the purpose or purposes for which it is to be held.

ARTICLE 13. SPECIAL VOTING REQUIREMENTS

In addition to any affirmative vote required by law, these Articles of Incorporation or otherwise, any “Business Combination” (as hereinafter defined) involving this corporation shall be subject to approval in the manner set forth in this Article 13.

13.1 Definitions .

For the purposes of this Article 13:

(a) “Business Combination” means (i) a merger, share exchange or consolidation of this corporation or any of its Subsidiaries with any other corporation; (ii) the sale, lease, exchange, mortgage, pledge, transfer or other disposition or encumbrance, whether in one transaction or a series of transactions, by this corporation or any of its Subsidiaries of all or a substantial part of this corporation’s assets otherwise than in the usual and regular course of business, or (iii) any agreement, contract or other arrangement providing for any of the foregoing transactions.

(b) “Continuing Director” means any member of the Board of Directors who was a member of the Board of Directors On January 1, 1994 or who is elected to the Board of Directors after January 1, 1994 upon the recommendation of a majority of the Continuing Directors voting separately and as a subclass of Directors on such recommendation.

(c) “Subsidiary” means a domestic or foreign corporation that has a majority of its outstanding voting shares owned, directly or indirectly, by this corporation.

13.2 Vote Required for Business Combinations .

13.2.1 Except as provided in subsection 13.2.2 of this Article 13, the affirmative vote of not less than two-thirds of the outstanding shares and, to the extent, if any, provided by resolution or resolutions of the Board of Directors providing for the issuance of a series of Common or Preferred Stock, not less than two-thirds of the outstanding shares entitled to vote thereon, voting as a class, shall be required for the adoption or authorization of a Business Combination.

13.2.2 Notwithstanding subsection 13.2.1 of this Article 13, if a Business Combination shall have been approved by a majority of the Continuing Directors, voting separately and as a subclass of Directors, and is otherwise required by law to be approved by this corporation’s shareholders, such Business Combination shall require the affirmative vote of not less than fifty-one percent (51%) of the outstanding shares entitled to vote thereon and, to the extent, if any, provided by resolution or resolutions of the Board of Directors providing for the issuance of a series-of Common or Preferred Stock, not less than fifty-one percent (51%) of the outstanding shares of such series, voting as a class; provided, however, that if a Business Combination approved by a majority of the Continuing Directors is not otherwise required by law to be approved by this corporation’s shareholders, then no vote of the shareholders of this corporation shall be required.

Dated: May 19, 2009
	TARGETED GENETICS CORPORATION

	By:	/s/ B.G. Susan Robinson
		B.G. Susan Robinson
		President and Chief Executive Officer

ARTICLES OF AMENDMENT TO ARTICLES

OF AMPLIPHI BIOSCIENCES CORPORATION

DESIGNATION OF PREFERENCES, RIGHTS AND LIMITATIONS OF

SERIES B CONVERTIBLE PREFERRED STOCK

Pursuant to the provisions of the Washington Business Corporation Act, RCW 23B.10.020 and RCW 23B.10.060, the undersigned corporation hereby submits these Articles of Amendment for filing:

FIRST: The name of the corporation is AmpliPhi Biosciences Corporation (the “Corporation”).

SECOND: This amendment to the Corporation’s Amended and Restated Articles of Incorporation (“Amended Articles”) was adopted by the Board of Directors of the Corporation on June 12, 2013. Shareholder action was not required on this amendment pursuant to Section 4.2 of the Amended Articles.

THIRD: A new Section 4.4 of Article 4 is added to the Amended Articles to add the preferences, rights and limitations of a new series of preferred stock as follows:

4.4 Designation of Rights and Preferences of Series B Convertible Preferred Stock

The following series of Preferred Stock is hereby designated, which series shall have the rights, preferences and privileges and limitations set forth below

4.4.1 Designation and Amount of Series B Preferred

5,000,000 shares of the Preferred Stock shall be a series designated as Series B Convertible Preferred Stock of the Corporation (“Series B Preferred”). Shares of Series B Preferred shall have an initial value of $1.40 per share (the “Series B Stated Value”) and par value per share of $0.01.

4.4.2 Voting Rights

(a)

General . Except as set forth in Section 4.4.2 herein and as otherwise required by law, the holders of the Series B Preferred shall be entitled to that number of votes equal to the number of shares of the Common Stock into which the Series B Preferred may be converted as of the date such vote is held. Except as otherwise provided herein or as required by law, the holders of the Series B Preferred shall vote together as a single voting group with the holders of the Common Stock on all matters submitted to a vote of the Corporation’s shareholders, including election of directors. Fractional votes shall not, however, be permitted, and any fractional voting rights resulting from the above formula shall be rounded to the nearest whole number (with one-half rounded upward). Whenever any matter is required to be approved by the holders of the Series B Preferred as a separate group, such consent shall require the approval of the holders of greater than two-thirds (2/3) of the outstanding Series B Preferred. The approval from the holders of the Series B Preferred required by Section 4.4.2(b) herein directly below is not intended to create a separate class voting right or require a shareholder vote, but rather constitute a requirement of approval (which does not have to be obtained or given in the manner required for shareholder votes) necessary for certain actions in addition to any shareholder approval otherwise required under the Articles of Incorporation or by law.

(b)

Negative Covenants . So long as any shares of Series B Preferred are outstanding, the Corporation shall not, without the prior written consent of the holders of more than two-thirds (2/3) of the outstanding shares of Series B Preferred:

(i)

Until a Conversion Event, authorize, create or issue (by reclassification or otherwise) any other class or series of capital stock having rights, preferences or privileges senior to or in parity with the Series B Preferred; or

(ii)

Alter or change the rights, preferences or privileges of the Series B Preferred or increase or decrease the authorized or issued and outstanding number of shares of Series B Preferred.

4.4.3 Dividends.

(a)

Until a Conversion Event, the holders of the Series B Preferred shall be entitled to receive dividends equal to the greater of (i) the rate of ten percent (10%) of the Series B Stated Value per annum, which shall accrue from day to day whether or not declared, shall compound annually and shall be cumulative, and (ii) the amount the Series B Preferred would be entitled to receive on as-if-converted basis with respect to dividends paid on the Common. After a Conversion Event, with respect to any shares of Series B that are not convertible as a result of the Maximum Percentage limitation contained in Section 4.4.3(c) , the holders of such Series B Preferred shall be entitled to receive dividends equal to the amount the Series B Preferred would be entitled to receive on as-if-converted basis with respect to dividends paid on the Common. In addition to the foregoing, until a Conversion Event, dividends shall be payable in cash at the option of the holders of two-thirds (2/3) of the then outstanding shares of Series B Preferred (a) when, as and if declared by the Board, (b) upon a Liquidation Event (as defined in Section 4.4.8 hereof); and (c) upon redemption of the Series B Preferred, as provided in Section 4.4.5 hereof. No dividend shall be paid on Common Shares (i) at a rate greater than the rate at which dividends are paid on the Series B Preferred and (ii) until all accrued dividends on the Series B Preferred have been paid in full.

(b)

Until a Conversion Event, no dividend shall be declared or paid upon, nor shall any distribution be made upon, any other capital stock of the Corporation, nor shall any other capital stock of the Corporation be purchased or redeemed by the Corporation (other than shares redeemed or repurchased from directors, employees, consultants or other service providers, pursuant to agreements providing the Corporation the right to purchase shares upon termination of service or shares acquired by the Corporation in satisfaction or settlement of any claims or disputes between the Corporation and any holder of capital stock of the Corporation), nor shall any moneys be paid to or made available for a sinking fund for the purchase or redemption of any other capital stock of the Corporation, unless in each instance dividends on all outstanding shares of the Series B Preferred shall have been accrued and paid in full.

4.4.4 Conversion.

(a)

Optional Conversion . Subject to subsection (c) below, each holder of shares of Series B Preferred shall have the right at any time and from time to time on or prior to a Liquidation Event (as defined in Section 4.4.8 , as set forth in the Liquidation Notice (as defined in Section 4.4.8 , or a Redemption Date (as defined in Section 4.4.5 ), as set forth in the Redemption Notice (as defined in Section 4.4.5 ), at such holder’s option, to convert any or all of the shares of Series B Preferred held by such holder into the number of fully paid and non-assessable Common Shares obtained by multiplying the number of shares of Series B Preferred to be converted by the Series B Preferred Conversion Rate, as determined from time to time pursuant to this Section 4.4.4 . The initial Series B Preferred Conversion rate shall be 10.0.

(b)

Automatic Conversion . The shares of Series B Preferred shall be automatically converted into fully paid and non-assessable Common Shares, at the then applicable Series B Preferred Conversion Rate (i) upon the closing of an underwritten initial public offering with aggregate offering proceeds to the Corporation of at least $7,000,000 (after reduction for underwriting discounts and commissions) and a price per share to the public of at least the Series B Stated Value (subject to adjustment in the event of any stock dividend, stock split, stock distribution or combination with respect to such shares) upon the closing of which the shares of Common Stock of the Corporation shall be listed for trading on the national securities exchanges operated by the New York Stock Exchange or NASDAQ Stock Market, or (ii) at the election of the holders of two-thirds (2/3) of the then outstanding shares of Series B Preferred (either (i) or (ii) being herein referred to as a “Conversion Event”).

(c)

Limitation on Conversion . Notwithstanding any other provision of this Section 4.4.4 , at any time prior to a Conversion Event, any holder of Series B Preferred may provide written notice to the Corporation electing to be subject to this Section 4.4.4(c) . With respect to any such electing holder of Series B Preferred, the Corporation shall not effect the conversion of any shares of Series B Preferred, and the holder shall not have the right to convert shares of Series B Preferred, to the extent that after giving effect to such conversion, the holder together with the other Attribution Parties (as defined below) collectively would beneficially own in excess of 9.99% (the “Maximum Percentage”) of the shares of Common Stock outstanding immediately after giving effect to such conversion. For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by the holder and the other Attribution Parties shall include the number of shares of Common Stock held by the holder and all other Attribution Parties plus the number of shares of Common Stock issuable upon conversion of shares of Series B Preferred with respect to which the determination of such sentence is being made, but shall exclude shares of Common Stock which would be issuable upon (A) conversion of the remaining, unconverted shares of Series B Preferred beneficially owned by the holder or any of the other Attribution Parties and (B) conversion or exercise of the unexercised or unconverted portion of any other securities of the Corporation (including, without limitation, any convertible notes or convertible preferred stock or warrants) beneficially owned by the holder or any other Attribution Party subject to a limitation on conversion or exercise analogous to the limitation contained in this Section 4.4.4(c) . For purposes of this Section 4.4.4(c) , beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act. For purposes of determining the number of outstanding shares of Common Stock the holder may acquire upon the conversion of shares of Series B Preferred without exceeding the Maximum Percentage, the holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Corporation’s most recent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or other public filing with the Securities and Exchange Commission, as the case may be, (y) a more recent public announcement by the Corporation or (3) any other written notice by the Corporation or the Transfer Agent setting forth the number of shares of Common Stock outstanding (the “Reported Outstanding Share Number”). If the Corporation receives a Conversion Notice from a holder at a time when the actual number of outstanding shares of Common Stock is less than the Reported Outstanding Share Number, the Corporation shall notify such holder in writing of the number of shares of Common Stock then outstanding and, to the extent that such Conversion Notice would otherwise cause the holder’s beneficial ownership, as determined pursuant to this Section 4.4.4(c) , to exceed the Maximum Percentage, the holder must notify the Corporation of a reduced number of shares of Series B Preferred to be converted and corresponding reduced number of Common Shares to be issued pursuant to such Conversion Notice. For any reason at any time, upon the written or oral request of the Holder, the Corporation shall within one (1) Business Day confirm orally and in writing or by electronic mail to the holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Corporation, including shares of Series B Preferred, by the holder and any other Attribution Party. In the event that the issuance of shares of Common Stock to the holder upon conversion of shares of Series B Preferred results in the holder and the other Attribution Parties being deemed to beneficially own, in the aggregate, more than the Maximum Percentage of the number of outstanding shares of Common Stock (as determined under Section 13(d) of the Exchange Act), the number of shares so issued by which the holder’s and the other Attribution Parties’ aggregate beneficial ownership exceeds the Maximum Percentage (the “Excess Shares”) shall be deemed null and void and shall be cancelled ab initio , and the holder shall not have the power to vote or to transfer the Excess Shares, and the shares of Series B Preferred associated with the Excess Shares shall be deemed not to have been converted. For purposes of clarity, the shares of Common Stock underlying the shares of Series B Preferred in excess of the Maximum Percentage shall not be deemed to be beneficially owned by the holder for any purpose including for purposes of Section 13(d) or Rule 16a-1(a)(1) of the Exchange Act. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4.4.4(c) to the extent necessary to correct this paragraph or any portion of this paragraph which may be defective or inconsistent with the intended beneficial ownership limitation contained in this Section 4.4.4(c) or to make changes or supplements necessary or desirable to properly give effect to such limitation. Once a holder has elected to become subject to this Section 4.4.4(c) , the limitation contained in this paragraph may not be waived and shall apply to a successor holder of the shares of Series B Preferred.

After a Conversion Event, in the event any shares of Series B Preferred are not convertible as a result of the Maximum Percentage limitation contained in this Section 4.4.4(c) , the shares of Series B Preferred not convertible shall remain outstanding (except as voluntarily converted pursuant to Section 4.4.4(a) hereof without exceeding the Maximum Percentage) until the date on which all such shares of Series B Preferred first become convertible without exceeding the Maximum Percentage. At that time, the shares of Series B Preferred shall automatically convert into Common Shares at the Series B Preferred Conversion Rate in accordance with the procedures set forth in this Section 4.4.4 .

For purposes of this Section, “Attribution Parties” means, with respect to a holder of Series B Preferred, collectively, the following persons and entities: (i) any investment vehicle, including, any funds, feeder funds or managed accounts directly or indirectly managed or advised by the holder’s investment manager or any of its affiliates or principals, (ii) any direct or indirect affiliates of the holder or any of the foregoing, (iii) any individual or entity acting or who could be deemed to be acting as a “group” (as defined in Rule 13d-5 promulgated under Section 13(d) of the Exchange Act) together with the holder or any of the foregoing and (iv) any other individuals or entities whose beneficial ownership of the Corporation’s Common Stock would or could be aggregated with the holder’s and the other Attribution Parties for purposes of Section 13(d) of the Exchange Act. For clarity, the purpose of the forgoing is to subject collectively an electing holder and all other Attribution Parties to the Maximum Percentage.

(d)

Mechanics of Conversion . Before any holder of shares of Series B Preferred converts any such shares into Common Shares, such holder shall surrender the certificate or certificates evidencing the shares to be converted, duly endorsed, at the principal office of the Corporation and shall give written notice to the Corporation at such office of the election to convert such shares into Common Shares (the “Conversion Notice”). The Conversion Notice shall state the number of the shares of Series B Preferred to be converted and the name in which the certificate(s) for Common Shares are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder, a certificate or certificates for the number of full Common Shares to which such holder is entitled. Any conversion shall be deemed to occur immediately prior to the close of business on the date of surrender of the shares to be converted, and the person or persons entitled to receive the Common Shares issuable upon such conversion shall be treated for all purposes as the record holder or holders of such Common Shares on such date and shall no longer be entitled to any dividends paid or accrued thereafter on the Series B Preferred. To the extent permitted by law, when shares of Series B Preferred are converted, all dividends accrued and unpaid on the shares of Series B Preferred so converted on the date of conversion shall be immediately due and payable and must accompany the Common Shares issued upon such conversion.

(e)

No Fractional Shares . No fractional Common Shares or scrip shall be issued upon conversion of the shares of Series B Preferred. If a holder surrenders for conversion more than one share of Series B Preferred at any time, the number of full Common Shares issuable upon conversion thereof shall be computed using the aggregate number of shares of Series B Preferred so surrendered. Instead of issuing any fractional Common Shares that would otherwise be issuable upon conversion of any of the shares of Series B Preferred, the Corporation shall round down to the nearest whole number of Common Shares and pay to such holder cash equal to the fair market value of such fraction on the date of conversion (as determined in good faith by the Board).

(f)

Adjustment of Conversion Rate . The Series B Preferred Conversion Rate shall be subject to adjustment from time to time as follows:

(i)

Effect of “Split-ups” and “Split-downs”; Stock Dividends . If at any time or from time to time the Corporation shall subdivide as a whole, by reclassification, by the issuance of a stock dividend on the Common Shares payable in Common Shares, or otherwise, the number of Common Shares, with or without par value, the Series B Preferred Conversion Rate shall be increased proportionately as of the effective or record date of such action by multiplying the Series B Preferred Conversion Rate, respectively, by a fraction, the numerator of which shall be the number of Common Shares outstanding immediately prior to the applicable record date plus the additional number of Common Shares necessary to effect such reclassification, stock dividend or otherwise, and the denominator shall be the number of Common Shares outstanding immediately prior to the applicable record date. The issuance of such a stock dividend shall be treated as a subdivision of the whole number of Common Shares outstanding immediately before the record date for such dividend into a number of shares equal to such whole number of shares so outstanding plus the number of shares issued as a stock dividend. In case at any time or from time to time the Corporation shall combine as a whole, by reclassification or otherwise, the number of Common Shares then outstanding into a lesser number of Common Shares, with or without par value, the Series B Preferred Conversion Rate shall be reduced proportionately as of the effective date of such action by multiplying the Series B Preferred Conversion Rate by a fraction, the numerator of which shall be the number of Common Shares which would be outstanding immediately after giving effect to such reclassification, stock dividend or otherwise without regard to this Section, and the denominator shall be the number of Common Shares outstanding immediately prior to the applicable record date.

(ii)

Effect of Certain Dividends . If on any date the Corporation makes a distribution to holders of its Common Shares but not the holders of Series B Preferred (including any such distribution made in connection with a consolidation or merger in which the Corporation is the continuing corporation) of evidences of its indebtedness or assets, the holders of the Series B Preferred shall be entitled to receive an amount of the Corporation’s indebtedness or assets equal to the amount each such holder would have received if such holder had converted all of its shares of Series B Preferred immediately prior to the record date for such distribution. Such adjustment shall be made whenever any such distribution is made and shall become effective retroactively to a date immediately following the close of business on the record date for the determination of shareholders entitled to receive such distribution.

(iii)

Reorganization and Reclassification . In case of any capital reorganization or any reclassification of the capital stock of the Corporation (except as provided in Section 4.4.4(f)(i) herein) while any shares of Series B Preferred remain outstanding, the holder of any shares of Series B Preferred shall thereafter be entitled to receive upon conversion of such Series B Preferred (in lieu of the number of Common Shares that such holder would have been entitled to receive if such holder had converted immediately before such reorganization or reclassification) the shares of stock of any class or classes or other securities or property to which such number of Common Shares would have been entitled if such shares of Series B Preferred had been converted immediately before such reorganization or reclassification. In case of any such reorganization or reclassification, appropriate provision (as determined by resolution of the Board) shall be made with respect to the rights and interests thereafter of the holders of Series B Preferred, to the end that all the provisions of these Sections 4.4.3 , 4.4.4 , 4.4.5 and 4.4.6 hereof (including adjustment provisions) shall thereafter be applicable, as nearly as reasonably practicable, in relation to such stock or other securities or property.

(iv)

Adjustment of Conversion Rate after a “Diluting Issue” . If on any date on or after June 26, 2013 and prior to a Conversion Event, any additional Common Shares (other than (a) shares issued upon conversion of the Series B Preferred, or (b) Excluded Securities, as hereinafter defined) shall be issued for a consideration per share (or, in the case of any transactions contemplated in Sections 4.4.4(f)(v)(C) or 4.4.4(f)(v)(D) herein, shall be deemed to be issued on or after the date hereof for a Presumed Consideration (as defined in Section 4.4.4(f)(iv)(F)(II) herein) per share) less than the Current Conversion Price (as defined in Section 4.4.4(f)(vi) herein) on the date such Common Shares were issued or deemed to have been issued, the Series B Preferred Conversion Rate shall be adjusted at the close of business on such date to equal the product resulting from the multiplication of (x) the Series B Preferred Conversion Rate, immediately before such issuance or deemed issuance of Common Shares (as may have been previously adjusted) by (y) a fraction, the numerator of which is the Series B Stated Value, and the denominator of which is the consideration per share received (or, without duplication, the Presumed Consideration per share deemed to have been received) in such issue multiplied by the Series B Preferred Conversion Rate, immediately before such issuance or deemed issuance of Common Shares (as may have been previously adjusted).

For the purpose of this Section 4.4.4(f)(iv) , the following provisions shall be applicable with respect to the issuance of additional Common Shares and the adjustment set forth in the immediately preceding paragraph:

(A)

Stock Dividends, Etc . In case any additional Common Shares shall be issued as a dividend on Common Shares, the Series B Preferred Conversion Rate shall be adjusted as provided in Section 4.4.4(f)(i) hereof.

In case any additional Common Shares shall be issued as a dividend on any class of stock of the Corporation other than Common Stock (in which case Section 4.4.4(f)(i) hereof shall apply) or Series B Preferred (in which case Section 4.4.3 herein shall apply), or in case any obligations or stock convertible into or exchangeable for Common Shares (such convertible or exchangeable obligations or stock being hereinafter called “Convertible Securities”) shall be issued as a dividend on any class of stock of the Corporation, such Common Shares or Convertible Securities shall be deemed to have been issued without consideration on the day next succeeding the date for the determination of shareholders entitled to such dividend.

(B)

Rights or Options below Current Conversion Price . In case the Corporation shall on or after the date of these Articles grant any rights or options (other than any rights or options that are Excluded Securities) to subscribe for or to purchase additional Common Shares or Convertible Securities, and the Presumed Consideration per share received and receivable by the Corporation for such additional shares under such rights or options or pursuant to the terms of such Convertible Securities shall be less than the Current Conversion Price in effect immediately prior to the terms or the granting of such rights or options, the maximum number of additional Common Shares issuable pursuant to such rights or options or necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued as of the date of the granting of such rights or options, and the Corporation shall be deemed to have received the Presumed Consideration therefor. No adjustment (except as provided in Section 4.4.4(f)(v)(D) herein) shall be made upon the actual issuance of Common Shares, upon the exercise of rights or options referenced in this Section 4.4.4(f)(v)(B) or the conversion of Convertible Securities referenced in this Section 4.4.4(f)(v)(B) .

(C)

Securities Convertible below Current Conversion Price . In case:

(I)

the Corporation shall issue any Convertible Securities, and

(II)

the Presumed Consideration per share for additional Common Shares issuable pursuant to the terms of such Convertible Securities shall be less than the Current Conversion Price in effect immediately prior to the time of the issuance of such Convertible Securities, then the issuance of such Convertible Securities shall be deemed to be an issuance (as of the date of issuance of such Convertible Securities) of the maximum number of additional Common Shares necessary to effect the conversion or exchange of all such Convertible Securities, and the Corporation shall be deemed to have received the Presumed Consideration therefor as of the date of issuance of such Convertible Securities. No further adjustment, except as provided in Section 4.4.4(f)(v)(D) herein, shall be made upon the actual issuance of Common Shares upon the conversion of Convertible Securities.

(D)

Superseding Adjustment of Conversion Rate . If, at any time after any adjustment of the Series B Preferred Conversion Rate shall have been made on the basis of Common Shares deemed to be issued by reason of the provisions of the foregoing Sections 4.4.4(f)(v)(B) or 4.4.4(f)(v)(C) on the basis of the granting of certain rights or options or the issuance of certain Convertible Securities, or after any new adjustments of the Series B Preferred Conversion Rate shall have been made on the basis of Common Shares deemed to be issued by reason of the provisions of this Section 4.4.4(f)(v)(D) , such rights or options or the right of conversion or exchange in any such Convertible Securities (for which, or purchased pursuant to any rights or options for which, such an adjustment shall previously have been made) shall expire, and none of such rights or options, or the right of conversion or exchange in respect of such Convertible Securities, as the case may be, shall have been exercised, then such previous adjustment shall be rescinded and annulled and the Common Shares that were deemed to have been issued by virtue of the computation made in connection with the adjustment so rescinded and annulled, shall no longer be deemed to have been issued by virtue of such computation.

(E)

Effect of “Split-Up” or “Split-Down” on “Deemed Issued” Shares . Upon the effective or record date for any subdivision or combination of the Common Shares of the character described in Section 4.4.4(f)(i) hereof, including the issuance of a stock dividend that is treated as such a subdivision under Section 4.4.4(f)(v)(A) herein, the number of the Common Shares that are at the time deemed to have been issued by virtue of Sections 4.4.4(f)(v)(B) , 4.4.4(f)(v)(C) or 4.4.4(f)(v)(D) herein, but have not actually been issued, shall be deemed to be increased or decreased proportionately.

(F)

Computation of Consideration and Presumed Consideration . For the purposes of this Section 4.4.4(f) :

(I)

The consideration received by the Corporation upon the actual issuance of additional Common Shares shall be deemed to be the sum of the amount of cash and the fair value of property (as determined in good faith by resolution of the Board as at the time of issue or “deemed issue” in the case of Section 4.4.4(f)(v)(F)(II) herein) received or receivable by the Corporation as the consideration or part of the consideration (v) at the time of issuance of the Common Shares, (w) for the issuance of any rights or options upon the exercise of which such Common Shares were issued, (x) for the issuance of any rights or options to purchase Convertible Securities upon the conversion of which such Common Shares were issued, (y) for the issuance of the Convertible Securities upon conversion of which such Common Shares were issued, and (z) at the time of the actual exercise of such rights, options or conversion privileges upon the exercise of which such Common Shares were issued, in each case without deduction for commissions and expenses incurred by the Corporation for any underwriting of, or otherwise in connection with the issue or sale of, such rights, options, Convertible Securities or Common Shares, but after deduction of any sums paid by the Corporation in cash upon the exercise of, and pursuant to, such rights, options or conversion privileges in respect of fractional Common Shares, except that the consideration received by the Corporation upon the issuance of Common Shares in connection with a consolidation, merger, purchase of assets as a going business or purchase of at least a majority of the voting stock of any corporation, shall be deemed to be the Current Conversion Price then in effect;

(II)

The consideration deemed to have been received by the Corporation for additional Common Shares deemed to be issued pursuant to rights, options and conversion privileges by reason of transactions of the character described in Sections 4.4.4(f)(v)(B) and 4.4.4(f)(v)(C) hereof (the “Presumed Consideration”) shall be the consideration (determined as provided in the foregoing Section 4.4.4(f)(v)(F)(I) ) that would be received or receivable by the Corporation at or before the actual issue of such Common Shares so deemed to be issued, if all rights, options and conversion privileges necessary to effect the actual issue of the number of shares deemed to have been issued and been exercised (successively exercised in the case of rights or options to purchase Convertible Securities), and the minimum consideration received or receivable by the Corporation upon such exercise had been received; all computed without regard to the possible future effect of anti-dilution provisions on such rights, options and/or conversion privileges.

(v)

Determination by the Board . All determinations by the Board under the provisions of this Section 4.4.4(f) shall be made in good faith with due regard to the interests of the holders of Series B Preferred and the other holders of securities of the Corporation and in accordance with good financial practice, and all valuations made by the Board under the terms of this Section 4.4.4(f) must be made with due regard to any market quotations of securities involved in, or related to, the subject of such valuation.

Unless the context otherwise requires, the following terms have the following respective meanings:

“Common Shares” means (i) the Corporation’s presently outstanding Common Stock, and (ii) stock of the Corporation of any class hereafter authorized that ranks, or is entitled to a participation, as to assets or dividends, substantially on a parity with Common Stock.

“Convertible Securities” shall have the meaning set forth in Section 4.4.4(f)(v)(A) herein.

“Current Conversion Price” shall initially mean $1.40 and shall be adjusted each time there is an adjustment in the Series B Preferred Conversion Rate to equal the quotient of the Current Conversion Price as in effect before such adjustment divided by the Series B Preferred Conversion Rate.

“Excluded Securities” means (i) warrants, stock options or appreciation rights granted to directors, officers, employees, consultants or service providers of the Corporation or its subsidiaries pursuant to any of the Corporation’s incentive compensation, option or benefit plans, as may be approved by the Board for officers, directors and employees of the Corporation (as the same may be adjusted pursuant to anti-dilution provisions contained in such stock options or rights), (ii) shares issued pursuant to the exercise of such warrants, options or rights granted pursuant to such plans, (iii) securities issued or issuable upon conversion of the Series B Preferred or exercise of the Warrant Shares issued pursuant to the Subscription Agreement, dated June 26, 2013, (iv) securities issued or issuable in connection with a bona fide business acquisition of or by the company, whether by merger, consolidation, sale of assets, sale or exchange of stock, in connection with licensing transaction or otherwise, or (v) securities issued or issuable to financial institutions or lessors in connection with commercial credit arrangements, equipment financings, commercial property lease transactions or similar transactions.

“Presumed Consideration” shall have the meaning set forth in Section 4.4.4(f)(iv)(F)(II) herein.

(g)

Notice to Holders . In the event the Corporation shall propose to take any action of the type described in Section 4.4.4(f)(ii)) herein or upon a Change in Control (as defined in Section 4.4.8 ), the Corporation shall give notice to each holder of Series B Preferred, which notice shall specify the record date, if any, with respect to any such action and the date on which such action is to take place. Such notice shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the Series B Preferred Conversion Rate and the number, kind or class of shares or other securities or property that shall be deliverable or purchasable upon the occurrence of such action or deliverable upon conversion of the shares of Series B Preferred. In the case of any action that would require the fixing of a record date, such notice shall be given at least ten (10) days prior to the date so fixed, and in case of all other action, such notice shall be given at least ten (10) days prior to the taking of such proposed action.

(h)

Shares Free and Clear . All Common Shares issued in connection with the conversion provisions set forth herein shall be, upon issuance by the Corporation, validly issued, fully paid and nonassessable and free from all taxes, liens or charges with respect thereto created or imposed by the Corporation.

(i)

Other Adjustments . If any event occurs of the type contemplated by the provisions of Section 4.4.4(f) hereof but not expressly provided for by such provisions, the Board will make appropriate adjustments to the terms and conditions of the shares of Series B Preferred Conversion Rate as may be necessary fully to carry out the adjustments contemplated by Section 4.4.4(f) hereof.

(j)

Certificate as to Adjustments . Upon the occurrence of each adjustment of the Series B Preferred Conversion Rate for any shares pursuant to Section 4.4.4 hereof, the Corporation at its expense shall promptly compute such adjustment in accordance with the terms hereof and furnish to each holder of Series B Preferred a certificate setting forth such adjustment and showing in detail the facts upon which such adjustment is based. The Corporation shall, upon the written request at any time of any holder of Series B Preferred, furnish or cause to be furnished to such holder a like certificate setting forth (a) such adjustments, (b) the Series B Preferred Conversion Rate at that time in effect, and (c) the number of Common Shares and the amount, if any, of other property which at the time would be received upon the conversion of shares of Series B Preferred. The Corporation shall file a like certificate among its permanent records and at all reasonable times during business hours shall permit inspection of such certificate by any holder of Series B Preferred requesting such inspection.

(k)

Common Stock Reserved . The Corporation shall reserve and keep available out of its authorized but unissued Common Shares such number of Common Shares as shall from time to time be sufficient to effect conversion of the shares of Series B Preferred.

4.4.5 Optional Redemption

(a)

Provided that there shall not have occurred a Conversion Event, at any time and from time to time after the fifth anniversary of the date of the first issuance of the Series B Preferred, the holders of two-thirds (2/3) of the then issued and outstanding shares of Series B Preferred, voting together as separate class, may require the Corporation to redeem (to the extent that such redemption shall not violate any applicable provisions of the laws of the State of Washington), all of the then issued and outstanding shares of Series B Preferred at the Redemption Price per share (for purposes of Section 4.4.5 , the “Redemption Demand”). The “Redemption Price” shall mean, with respect to each share of Series B Preferred, an amount equal to the sum of (i) the Series B Preferred Stated Value thereof (subject to adjustment in the event of any stock dividend, stock split, stock distribution or combination with respect to such shares), plus (ii) all accrued but unpaid dividends thereon to the Redemption Date (as defined below). If upon receiving the Redemption Demand, the Corporation is unable to redeem, within fifteen (15) days after the Redemption Date, any shares of Series B Preferred then to be redeemed because such redemption would violate the applicable laws of the State of Washington, then the Corporation shall redeem such shares as soon thereafter as redemption would not violate such laws.

(b)

Within five (5) days after the Corporation receives the Redemption Demand, written notice shall be mailed, postage prepaid, to each holder of the Series B Preferred, at his or its post office address last shown on the records of the Corporation, notifying such holder of the number of shares so to be redeemed, specifying the date such shares are to be redeemed (for purposes of Section 4.4.5 , the “Redemption Date”) and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, his or its certificate or certificates representing the shares of Series B Preferred to be redeemed (for purposes of Section 4.4.5 , the “Redemption Notice”). Upon surrender of such certificate or certificates to the Corporation, in the manner and at the place designated in the Redemption Notice, the Corporation shall pay one-third (1/3) of the Redemption Price of such stock immediately payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be cancelled and the remaining two-thirds (2/3) of the Redemption Price of such stock shall be payable in two (2) equal installments on the last day of every twelve (12) month period from the Redemption Date; provided, however, that each holder of Series B Preferred shall have the rights, at any time prior to the Redemption Date (unless the Corporation defaults in the payment of the Redemption Price, in which case such right shall not terminate at such time and date), to convert its shares of Series B Preferred into Common Shares as provided in Section 4.4.5 hereof. From and after the Redemption Date, unless there shall have been a default in payment of the applicable Redemption Price, all rights of the holders of Series B Preferred of the Corporation (except the right to receive the Redemption Price without interest upon surrender of their certificate or certificates) shall cease, and such shares of Series B Preferred shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever.

(c)

Except as provided in this Section 4.4.5 the Corporation shall have no right to redeem the shares of Series B Preferred. Any shares of Series B Preferred so redeemed shall be permanently retired, shall no longer be deemed outstanding and shall not under any circumstances be reissued, and the Corporation may from time to time take such appropriate corporate action as may be necessary to reduce the authorized number of Series B Preferred accordingly.

4.4.6 Adverse Event

(a)

At any time prior to a Conversion Event and after the occurrence of an Adverse Event (as defined below), the Corporation shall, at the option of the holders of two-thirds (2/3) of the Series B Preferred repurchase and redeem all shares of Series B Preferred at a price per share equal to the Series B Liquidation Preference (as defined in Section 4.4.8 hereof). An “Adverse Event” for purposes of Section 4.4.6 shall mean the occurrence of any of the following: (a) the Corporation failing to make any redemption payment with respect to the Series B Preferred that it is required to make hereunder or (b) the Corporation making an assignment for the benefit of creditors or admitting in writing its inability to pay its debts generally as they become due, or when an order, judgment or decree is entered adjudicating the Corporation bankrupt or insolvent.

(b)

The remedies set forth above are not intended to limit any other rights to which the holders of the Series B Preferred are entitled under these Articles of Incorporation or any contract, agreement or applicable law.

4.4.7 Miscellaneous

(a)

Registration of Transfer . The Corporation shall keep at its principal office a register for the registration of shares of Series B Preferred. Upon the surrender at its principal office of any certificate representing shares of Series B Preferred, the Corporation shall, at the request of the record holder of such certificate, execute and deliver (at the Corporation’s expense) a new certificate or certificates in exchange therefor representing in the aggregate the number of shares represented by the surrendered certificate. Each such new certificate will be registered in such name and will represent such number of shares as is requested by the holder of the surrendered certificate (subject to the immediately preceding sentence) and will be substantially identical in form to the surrendered certificate.

(b)

Replacement . Upon receipt of evidence, and an agreement to indemnify reasonably satisfactory to the Corporation (an affidavit of the registered holder, without bond, will be satisfactory), of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing one or more shares of Series B Preferred, the Corporation will (at its expense) execute and deliver in lieu of such certificate a new certificate representing the number of shares represented by such lost, stolen, destroyed or mutilated certificate.

(c)

Amendment and Waiver . No amendment, modification or waiver of any of the terms of this Section 4.4.7 will be binding or effective without the prior written consent of holders of two-thirds (2/3) of the shares of Series B Preferred at the time such action is taken.

(d)

Notices . All notices referred to herein, except as otherwise provided, will be hand delivered or made by registered or certified mail, return receipt requested, postage prepaid, or by overnight courier and will be deemed to have been given when so hand delivered or mailed.

4.4.8 Liquidation Preference

Upon the occurrence of a Liquidation Event (as defined herein) that occurs prior to a Conversion Event, the Corporation shall first make payments to the holders of the Series B Preferred, and thereafter to the holders of the Common Shares, all in accordance with this Section 4.4.8 as follows:

(a)

First . Upon a Change in Control (as defined below) or any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary (in each case, a “Liquidation Event”), that occurs prior to a Conversion Event, the holders of the Series B Preferred then outstanding shall be entitled to receive and to be paid out of the assets or surplus funds of the Corporation available for distribution to its shareholders, prior to and in preference to any payments to be made to the holders of the Common Shares, an amount per share equal to the greater of (i) the sum of (A) the Series B Stated Value at the time of such Liquidation Event (as adjusted for any stock dividends, combinations or splits with respect to such shares) plus (B) all accrued but unpaid dividends through the Liquidation Event (as adjusted for any stock dividends, combinations or splits with respect to such shares) plus (C) after the distribution contemplated by (A) and (B) above and assuming a distribution to the holders of Common Shares in proportion to the Common Shares held or that the holder has the right to acquire upon conversion of the Series B Preferred, such additional aggregate amount that would be distributable with respect to the aggregate number of Common Shares issuable upon conversion of such shares of Series B Preferred, assuming conversion of all shares of Series B Preferred and without regard to the limitation on conversion set forth in Section 4.4.4(c) hereof, provided, however , that for purposes of this subsection (i) only, the holders of Series B Preferred shall be entitled to receive remaining assets and funds of the Corporation of an aggregate value below or equal to, but not to exceed, the aggregate of two (2) times the Series B Stated Value at the time of such Liquidation Event; or (ii) assuming a distribution to the holders of Common Shares in proportion to the Common Shares held or that the holder has the right to acquire upon conversion of the Series B Preferred, the aggregate amount that would be distributable with respect to the aggregate number of Common Shares issuable upon conversion of such shares of Series B Preferred, assuming conversion of all shares of Series B Preferred and without regard to the limitation on conversion set forth in Section 4.4.4(c) hereof.

(b)

Second . Upon completion of the distribution required by Section 4.4.8(a) , the remaining assets or surplus funds of the Corporation available for distribution to its shareholders shall be distributed among the holders of Common Shares pro rata based upon the number of Common Shares held by each such holder.

(c)

For purposes of this Section 4.4.8 , a “Change in Control” means (x) a merger, consolidation, share exchange or other transaction involving the Corporation or any of its subsidiaries or the shareholders of the Corporation; (y) the transfer by one or more of the Corporation’s shareholders of a number of shares of voting capital stock of the Corporation or any securities convertible into or exchangeable for voting capital stock in any one (1) year period that, pursuant to either (x) or (y), results in one person or entity or an affiliated group of persons or entities, other than the shareholders of the Corporation immediately preceding the consummation of such transaction(s) either (i) owning in excess of fifty percent (50%) of the total voting capital stock of the Corporation taking into account issued and outstanding shares of such stock and any other shares of such capital stock that would be issued and outstanding assuming conversion or exchange of any and all other securities of the Corporation so convertible or exchangeable or (ii) being able to elect a majority of the Board of Directors; or (z) the sale, lease, abandonment, transfer or other disposition by the Corporation or any of its subsidiaries of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole, excluding the grant of a security interest to a bank by the Corporation in all or substantially all of its assets pursuant to a bona fide financing arrangement approved by the Board. Only for purposes of (y) hereof, (i) transfers due to the death of a shareholder or (ii) transfers to a member of a shareholder’s immediate family, family limited partnership, family limited liability company or a trust of which the beneficiary is such immediate family member shall not be considered as transfers.

(d)

Upon a Liquidation Event that occurs after a Conversion Event, the holders of the Series B Preferred and the Common Shares shall receive all remaining assets and funds of the Corporation legally available for distribution in proportion to the Common Shares held by each holder and the Common Shares that each holder of the Series B Preferred has the right to acquire upon conversion of the shares of the Series B Preferred held by such holder (without regard to the limitation on conversion set forth in Section 4.4.4(c) ).

(e)

If upon such Liquidation Event, the assets of the Corporation are insufficient to pay the applicable preferential amount to the holders of shares of Series B Preferred as described in Section 4.4.8(a) herein, the assets of the Corporation will be distributed among the holders of Series B Preferred on a pro rata basis according to the amounts each holder was entitled to receive under Section 4.4.8(a) herein.

(f)

The Corporation will mail written notice of such Liquidation Event, not less than ten (10) days prior to the payment date stated herein, to each record holder of Series B Preferred. The purchase or redemption by the Corporation of stock of any class, in any manner permitted by law, shall not for the purpose of this Section 4.4.8 be regarded as a Liquidation Event of the Corporation.

(g)

All of the preferential amounts to be paid to the holders of Series B Preferred pursuant to Section 4.4.8(a) herein shall be paid or set apart for payment before the payment or setting apart for payment of any amount for, or the distribution of any assets or surplus funds of the Corporation to, the holders of Common Shares in connection with such Liquidation Event.

[REST OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, AmpliPhi Biosciences Corporation has caused these Articles of Amendment to be executed by its duly authorized officer on June 26, 2013.

	AMPLIPHI BIOSCIENCES CORPORATION

	By:	/s/ Philip Young
	Name:	Philip Young
	Title:	President and Chief Executive Officer

ARTICLES OF CORRECTION

RCW 23B.01.240

UBI#:

Phone#:

Pursuant to, RCW 23B.01.240 of the Washington Business Corporation Act, the undersigned corporation hereby submits Articles of Correction for the purpose of correcting a document filed in the Corporations Division of the Office of the Secretary of State.

The name of the corporation is:

AmpliPhi Biosciences Corporation

The document to be corrected is:

Articles of Amendment

( Example : Article of Incorporation; Articles of Amendment; Application for Certificate of Authority, etc.)

The document was filed on:

June 26, 2013

4.	Specify the incorrect statement or manner of defective execution and the reason for it.
	(Example: Article 3 incorrectly lists. number of shares as 660-typing error)
	Section 4.4.1 incorrectly lists number of shares of Series B Preferred Stock as 5,000,000 due
	to a transcription error.

5.	The corrected statement or corrected execution of the document is as follows:
	4.4.1 Designation and Amount of Series B Preferred
	9,357,935 shares of the Preferred Stock shall be a series designated as Series B Convertible
	Preferred Stock of the Corporation (“Series B Preferred”). Shares of Series B Shall have an
	initial value of 1.40 per share (the “Series B stated Value”) and par value per share of $0.01.

6.	The document is hereby executed under penalties of perjury, and is, to the best of my knowledge true and correct.

Date:

October 23, 2013

/s/ authorized signatory

ARTICLES OF AMENDMENT TO AMENDED AND RESTATED ARTICLES
INCORPORATION OF AMPLIPHI BIOSCIENCES CORPORATION

(a Washington corporation)

Pursuant to the provisions of the Washington Business Corporation Act, RCW 23B.10.020 and RCW 23B.10.060, the undersigned corporation hereby submits these Articles of Amendment for filing:

FIRST : The name of the corporation is AmpliPhi Biosciences Corporation (the “Corporation”).

SECOND : This amendment to the Corporation’s Amended and Restated Articles of Incorporation (“Amended Articles”) was adopted by the Board of Directors of the Corporation on August 3, 2015;

THIRD : Pursuant to Article 10 of the amended articles, this amendment to the Corporation’s Amended Articles was adopted by (i) the affirmative vote of the holders of a majority of the outstanding shares of the Corporation and (ii) the affirmative vote of the holders of a majority of the outstanding shares of the Corporation’s Common Stock, voting as a class.

FOURTH : Section 4.1 of Article 4 is hereby is hereby amended and restated in its entirety to read as follows:

“ 4.1 Authorized Capital

The total authorized stock of this corporation shall consist of 670,000,000 shares of Common Stock, par value $0.01 per share, and 10,000,000 shares of Preferred Stock, par value $0.01 per share.

On August 7, 2015, at 12:01 a.m. Eastern Time (the “Effective Time”), each fifty (50) shares of the Corporation’s Common Stock issued and outstanding immediately prior to the Effective Time shall be reclassified and combined into one share of the Corporation’s Common Stock, automatically and without any action on the part of the respective holders thereof (the “Reverse Stock Split”). No fractional shares shall be issued in the Reverse Stock Split and any fractional shares will be rounded up to the nearest whole share.”

[REST OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF , AmpliPhi Biosciences Corporation has caused these Articles of Amendment to be executed by its duly authorized officer on August 3, 2015.

	AMPLIPHI BIOSCIENCES CORPORATION

	By:	/s/ M. Scott Salka
	Name:	M. Scott Salka
	Title:	Chief Executive Officer

Exhibit 3.2

FIRST AMENDMENT

AMENDED AND RESTATED BYLAWS

AMPLIPHI BIOSCIENCES CORPORATION

This First Amendment to the Amended and Restated Bylaws (the “Bylaws”) of AmpliPhi Biosciences Corporation (the “Corporation”), shall be amended as follows.

Section 3.14 of the Bylaws is hereby amended and restated in its entirety as follows:

“Any Director or the entire Board may be removed with or without cause, unless the Articles of Incorporation provide that directors may be removed only for cause, by the holders entitled to elect the Director or Directors whose removal is sought. A Director may be removed only if the number of votes cast to remove the director exceeds the number of votes cast not to remove the director. Such action may only be taken at a special meeting of the shareholders called expressly for the purpose of removing the director and the meeting notice must state that the purpose, or one of the purposes, of the meeting is removal of the director.”

The first sentence of Section 3.15 of the Bylaws is hereby amended and restated in its entirety as follows:

“Unless the Articles of Incorporation provide otherwise, any vacancy occurring on the Board may be filled by the shareholders, the Board or, if the Directors in office constitute fewer than a quorum, by the affirmative vote of a majority of the remaining Directors.”

IN WITNESS WHEREOF, the foregoing amendment to the Bylaws is effective as of October 27, 2014.

	/s/ David E. Bosher

	David E. Bosher
	Secretary of AmpliPhi Biosciences Corporation

AMENDED AND RESTATED BYLAWS

TARGETED GENETICS CORPORATION

Section 1.	OFFICES	1

Section 2.	SHAREHOLDERS	1

2.1	Annual Meeting	1

2.2	Special Meetings	1

2.3	Meetings by Communication Equipment	1

2.4	Date, Time and Place of Meeting	1

2.5	Notice of Meeting	2

2.6	Business for Shareholders' Meetings	2
	2.6.1 Business at Annual Meetings	2
	2.6.2 Business at Special Meetings	3
	2.6.3 Notice to Corporation	3

2.7	Waiver of Notice	3

2.8	Fixing of Record Date for Determining Shareholders	3

2.9	Voting Record	4

2.10	Quorum	4

2.11	Manner of Acting	4

2.12	Proxies	4

2.13	Voting of Shares	5

2.14	Voting for Directors	5

2.15	Action by Shareholders Without a Meeting	5

Section 3.	BOARD OF DIRECTORS	5

3.1	General Powers	5

3.2	Number and Tenure	5

3.3	Nomination and Election	6
	3.3.1 Nomination	6
	3.3.2 Election	7

3.4	Annual and Regular Meetings	7

3.5	Special Meetings	7

3.6	Meetings by Communications Equipment	7

3.7	Notice of Special Meetings	7
	3.7.1 Personal Delivery	7
	3.7.2 Delivery by Mail	7
	3.7.3 Delivery by Private Carrier	8
	3.7.4 Facsimile Notice	8
	3.7.5 Oral Notice	8

3.8	Waiver of Notice	8
	3.8.1 In Writing	8
	3.8.2 By Attendance	8

3.9	Quorum	8

3.10	Manner of Acting	9

3.11	Presumption of Assent	9

3.12	Action by Board or Committees Without a Meeting	9

3.13	Resignation	9

3.14	Removal	9

3.15	Vacancies	10

3.16	Executive and Other Committees	10
	3.16.1 Creation of Committees	10
	3.16.2 Authority of Committees	10
	3.16.3 Audit Committee	11
	3.16.4 Quorum and Manner of Acting	11
	3.16.5 Minutes of Meetings	11
	3.16.6 Resignation	11
	3.16.7 Removal	11

3.17	Compensation	12

Section 4.	OFFICERS	12

4.1	Appointment and Term	12

4.2	Resignation	12

4.3	Removal	12

4.4	Contract Rights of Officers	12

4.5	Chairman of the Board	12

4.6	President	13

4.7	Vice President	13

4.8	Secretary	13

4.9	Treasurer	13

4.10	Salaries	14

Section 5.	CONTRACTS, LOANS, CHECKS AND DEPOSITS	14

5.1	Contracts	14

5.2	Loans to the Corporation	14

5.3	Checks and Drafts	14

5.4	Deposits	14

Section 6.	CERTIFICATES FOR SHARES AND THEIR TRANSFER	14

6.1	Issuance of Shares	14

6.2	Certificates for Shares	14

6.3	Stock Records	15

6.4	Transfer of Shares	15

6.5	Lost or Destroyed Certificates	15

Section 7.	BOOKS AND RECORDS	15

Section 8.	ACCOUNTING YEAR	16

Section 9.	SEAL	16

Section 10.	INDEMNIFICATION	16

10.1	Right to Indemnification	16

10.2	Restrictions on Indemnification	17

10.3	Advancement of Expenses	17

10.4	Right of Indemnitee to Bring Suit	17

10.5	Procedures Exclusive	18

10.6	Nonexclusivity of Rights	18

10.7	Insurance, Contracts and Funding	18

10.8	Indemnification of Employees and Agents of the Corporation	18

10.9	Persons Serving Other Entities	18

Section 11.	AMENDMENTS	19

AMENDED AND RESTATED BYLAWS

TARGETED GENETICS CORPORATION

Section 1. OFFICES

The principal office of the corporation shall be located at the principal place of business or such other place as the Board of Directors ("Board") may designate. The corporation may have such other offices, either within or without the state of Washington, as the Board may designate or as the business of the corporation may require from time to time.

Section 2. SHAREHOLDERS

2.1 Annual Meeting

The annual meeting of the shareholders shall be held at such place and at such time as the Board of Directors shall prescribe, for the purpose of electing Directors and transacting such other business as may properly come before the meeting. If the day fixed for the annual meeting is a legal holiday at the place of the meeting, the meeting shall be held on the next succeeding business day.

2.2 Special Meetings

The Chairman of the Board, the President or the Board may call special meetings of the shareholders for any purpose. Further, a special meeting of the shareholders shall be held if the holders of not less than 30% of all the votes entitled to be cast on any issue proposed to be considered at such special meeting have dated, signed and delivered to the Secretary one or more written demands for such meeting, describing the purpose or purposes for which it is to be held.

2.3 Meetings by Communication Equipment

Shareholders may participate in any meeting of the shareholders by any means of communication by which all persons participating in the meeting can hear each other during the meeting. Participation by such means shall constitute presence in person at a meeting.

2.4 Date, Time and Place of Meeting

Except as otherwise provided herein, all meetings of shareholders, including those held pursuant to demand by shareholders as provided herein, shall be held on such date and at such time and place, within or without the state of Washington, designated by or at the direction of the Board.

2.5 Notice of Meeting

Written notice stating the place, day and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called shall be given by or at the direction of the Board, the Chairman of the Board, the President or the Secretary to each shareholder entitled to notice of or to vote at the meeting not less than ten nor more than sixty days before the meeting. Such notice may be transmitted by mail, private carrier, personal delivery, telegraph, teletype or communications equipment which transmits a facsimile of the notice to like equipment which receives and reproduces such notice. If these forms of written notice are impractical in the view of the Board, the Chairman of the Board, the President or the Secretary, written notice may be transmitted by an advertisement in a newspaper of general circulation in the area of the corporation's principal office. If such notice is mailed, it shall be deemed effective when deposited in the official government mail, first-class postage prepaid, properly addressed to the shareholder at such shareholder's address as it appears in the corporation's current record of shareholders. Notice given in any other manner shall be deemed effective when dispatched to the shareholder's address, telephone number or other number appearing on the records of the corporation. Any notice given by publication as herein provided shall be deemed effective five days after first publication.

2.6 Business for Shareholders' Meetings

2.6.1 Business at Annual Meetings

In addition to the election of directors, other proper business may be transacted at an annual meeting of shareholders, provided that such business is properly brought before such meeting. To be properly brought before an annual meeting, business must be (a) brought by or at the direction of the Board or (b) brought before the meeting by a shareholder pursuant to written notice thereof, in accordance with subsection 2.6.3 hereof, and received by the Secretary not fewer than sixty nor more than ninety days prior to the date specified in subsection 2.1 hereof for such annual meeting (or if less than sixty days' notice or prior public disclosure of the date of the annual meeting is given or made to the shareholders, not later than the tenth day following the day on which the notice of the date of the annual meeting was mailed or such public disclosure was made). Any such shareholder notice shall set forth (i) the name and address of the shareholder proposing such business; (ii) a representation that the shareholder is entitled to vote at such meeting and a statement of the number of shares of the corporation which are beneficially owned by the shareholder; (iii) a representation that the shareholder intends to appear in person or by proxy at the meeting to propose such business; and (iv) as to each matter the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting, the language of the proposal (if appropriate), and any material interest of the shareholder in such business. No business shall be conducted at any annual meeting of shareholders except in accordance with this subsection 2.6.1. If the facts warrant, the Board, or the chairman of an annual meeting of shareholders, may determine and declare (x) that a proposal does not constitute proper business to be transacted at the meeting or (y) that business was not properly brought before the meeting in accordance with the provisions of this subsection 2.6.1 and, if, in either case, it is so determined, any such business shall not be transacted. The procedures set forth in this subsection 2.6.1 for business to be properly brought before an annual meeting by a shareholder are in addition to, and not in lieu of, the requirements set forth in Rule 14a-8 under Section 14 of the Securities Exchange Act of 1934, as amended, or any successor provision.

2.6.2 Business at Special Meetings

At any special meeting of the shareholders, only such business as is specified in the notice of such special meeting given by or at the direction of the person or persons calling such meeting, in accordance with subsection 2.5 hereof, shall come before such meeting.

2.6.3 Notice to Corporation

Any written notice required to be delivered by a shareholder to the corporation pursuant to subsection 2.5, subsection 2.6.1 or subsection 2.6.2 hereof must be given, either by personal delivery or by registered or certified mail, postage prepaid, to the Secretary at the corporation's executive offices in the city of Seattle, state of Washington.

2.7 Waiver of Notice

Whenever any notice is required to be given to any shareholder under the provisions of these Bylaws, the Articles of Incorporation or the Washington Business Corporation Act, a waiver thereof in writing, signed by the person or persons entitled to such notice and delivered to the corporation, whether before or after the date and time of the meeting, shall be deemed equivalent to the giving of such notice. Further, notice of the time, place and purpose of any meeting will be deemed to be waived by any shareholder by attendance at such meeting in person or by proxy, unless such shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting.

2.8 Fixing of Record Date for Determining Shareholders

For the purpose of determining shareholders entitled (a) to notice of or to vote at any meeting of shareholders or any adjournment thereof, (b) to demand a special meeting, or (c) to receive payment of any dividend, or in order to make a determination of shareholders for any other purpose, the Board may fix a future date as the record date for any such determination. Such record date shall be not more than seventy days, and in case of a meeting of shareholders not less than thirty days prior to the date on which the particular action requiring such determination is to be taken. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting, the record date shall be the day immediately preceding the date on which notice of the meeting is first given to shareholders. Such a determination shall apply to any adjournment of the meeting unless the Board fixes a new record date, which it shall do if the meeting is adjourned to a date more than one hundred twenty days after the date fixed for the original meeting. If no record date is set for the determination of shareholders entitled to receive payment of any stock dividend or distribution (other than one involving a purchase, redemption or other acquisition of the corporation's shares) the record date shall be the date the Board authorizes the stock dividend or distribution.

2.9 Voting Record

At least ten days before each meeting of shareholders, an alphabetical list of the shareholders entitled to notice of such meeting shall be made, arranged by voting group and by each class or series of shares therein, with the address of and number of shares held by each shareholder. This record shall be kept at the principal office of the corporation for ten days prior to such meeting, and shall be kept open at such meeting, for the inspection of any shareholder or any shareholder's agent.

2.10 Quorum

A majority of the votes entitled to be cast on a matter by the holders of shares that, pursuant to the Articles of Incorporation or the Washington Business Corporation Act, are entitled to vote and be counted collectively upon such matter, represented in person or by proxy, shall constitute a quorum of such shares at a meeting of shareholders. If less than a majority of such votes are represented at a meeting, a majority of the votes so represented may adjourn the meeting from time to time without further notice if the new date, time or place is announced at the meeting before adjournment. Any business may be transacted at a reconvened meeting that might have been transacted at the meeting as originally called, provided a quorum is present or represented at such meeting. Once a share is represented for any purpose at a meeting other than solely to object to holding the meeting or transacting business at such meeting, it is deemed present for quorum purposes for the remainder of the meeting and any adjournment thereof (unless a new record date is or must be set for the adjourned meeting) notwithstanding the withdrawal of enough shareholders to leave less than a quorum.

2.11 Manner of Acting

If a quorum is present, action on a matter other than the election of Directors shall be approved if the votes cast in favor of the action by the shares entitled to vote and be counted collectively upon such matter exceed the votes cast against such action by the shares entitled to vote and be counted collectively thereon, unless the Articles of Incorporation or the Washington Business Corporation Act requires a greater number of affirmative votes.

2.12 Proxies

A shareholder may vote by proxy executed in writing by the shareholder or by his or her attorney-in-fact or agent. Such proxy shall be effective when received by the Secretary or other officer or agent authorized to tabulate votes. A proxy shall become invalid eleven months after the date of its execution, unless otherwise provided in the proxy. A proxy with respect to a specified meeting shall entitle the holder thereof to vote at any reconvened meeting following adjournment of such meeting but shall not be valid after the final adjournment thereof.

2.13 Voting of Shares

Except as provided in the Articles of Incorporation or in Section 2.14 hereof, each outstanding share entitled to vote with respect to a matter submitted to a meeting of shareholders shall be entitled to one vote upon such matter.

2.14 Voting for Directors

Each shareholder entitled to vote at an election of Directors may vote, in person or by proxy, the number of shares owned by such shareholder for as many persons as there are Directors to be elected and for whose election such shareholder has a right to vote. Unless otherwise provided in the Articles of Incorporation or in Section 3.14 hereof, the candidates elected shall be those receiving the largest number of votes cast, up to the number of Directors to be elected.

2.15 Action by Shareholders Without a Meeting

Any action which could be taken at a meeting of the shareholders may be taken without a meeting if one or more written consents setting forth the action so taken are signed by all shareholders entitled to vote on the action and are delivered to the corporation. If not otherwise fixed by the Board, the record date for determining shareholders entitled to take action without a meeting is the date the first shareholder signs the consent. A shareholder may withdraw a consent only by delivering a written notice of withdrawal to the corporation prior to the time that all consents are in the possession of the corporation. Action taken by written consent of shareholders without a meeting is effective when all consents are in the possession of the corporation, unless the consent specifies a later effective date. Any such consent shall be inserted in the minute book as if it were the minutes of a meeting of the shareholders.

Section 3. BOARD OF DIRECTORS

3.1 General Powers

All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of, the Board, except as may be otherwise provided in these Bylaws, the Articles of Incorporation or the Washington Business Corporation Act.

3.2 Number and Tenure

The Board shall be composed of not less than one nor more than nine Directors, the specific number to be set by resolution of the Board or the shareholders. The number of Directors may be changed from time to time by amendment to these Bylaws, but no decrease in the number of Directors shall have the effect of shortening the term of any incumbent Director. Directors need not be shareholders of the corporation or residents of the state of Washington and need not meet any other qualifications.

The Board shall be divided into three classes, with such classes to be as equal in number as may be possible, with any Director or Directors in excess of the number divisible by three being assigned to Class 3 and Class 2, as appropriate. At each annual meeting of shareholders the number of Directors equal to the number of Directors in the class whose term expires at the time of such meeting shall be elected to serve until the third ensuing annual meeting of shareholders. Notwithstanding any of the foregoing provisions of this Section 3.2, Directors shall serve until their successors are elected and qualified or until their earlier death, resignation or removal from office or until there is a decrease in the number of Directors.

3.3 Nomination and Election .

3.3.1 Nomination

Only persons who are nominated in accordance with the following procedures shall be eligible for election as Directors. Nominations for the election of Directors may be made (a) by or at the direction of the Board or (b) by any shareholder of record entitled to vote for the election of Directors at such meeting; provided, however, that a shareholder may nominate persons for election as Directors only if written notice (in accordance with subsection 2.6.3 hereof) of such shareholder's intention to make such nominations is received by the Secretary not later than (i) with respect to an election to be held at an annual meeting of the shareholders, not fewer than sixty nor more than ninety days prior to the date specified in subsection 2.1 hereof for such annual meeting (or if less than sixty days' notice or prior public disclosure of the date of the annual meeting is given or made to the shareholders, not later than the tenth day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made) and (ii) with respect to an election to be held at a special meeting of the shareholders for the election of Directors, the close of business on the seventh business day following the date on which notice of such meeting is first given to shareholders. Any such shareholder's notice shall set forth (a) the name and address of the shareholder who intends to make a nomination; (b) a representation that the shareholder is entitled to vote at such meeting and a statement of the number of shares of the corporation which are beneficially owned by the shareholder; (c) a representation that the shareholder intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (d) as to each person the shareholder proposes to nominate for election or re-election as a Director, the name and address of such person and such other information regarding such nominee as would be required in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had such nominee been nominated by the Board, and a description of any arrangements or understandings, between the shareholder and such nominee and any other persons (including their names), pursuant to which the nomination is to be made; and (e) the consent of each such nominee to serve as a Director if elected. If the facts warrant, the Board, or the chairman of a shareholders' meeting at which Directors are to be elected, shall determine and declare that a nomination was not made in accordance with the foregoing procedure and, if it is so determined, the defective nomination shall be disregarded. The right of shareholders to make nominations pursuant to the foregoing procedure is subject to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation. The procedures set forth in this subsection 3.3 for nomination for the election of Directors by shareholders are in addition to, and not in limitation of, any procedures now in effect or hereafter adopted by or at the direction of the Board or any committee thereof.

3.3.2 Election

At each election of Directors, the persons receiving the greatest number of votes shall be the Directors.

3.4 Annual and Regular Meetings

An annual Board meeting shall be held without notice immediately after and at the same place as the annual meeting of shareholders. By resolution the Board, or any committee thereof, may specify the time and place either within or without the state of Washington for holding regular meetings thereof without notice other than such resolution.

3.5 Special Meetings

Special meetings of the Board or any committee designated by the Board may be called by or at the request of the Chairman of the Board, the President, the Secretary or, in the case of special Board meetings, any one Director and, in the case of any special meeting of any committee designated by the Board, by the Chairman thereof. The person or persons authorized to call special meetings may fix any place either within or without the state of Washington as the place for holding any special Board or committee meeting called by them.

3.6 Meetings by Communications Equipment

Members of the Board or any committee designated by the Board may participate in a meeting of such Board or committee by, or conduct the meeting through the use of, any means of communication by which all Directors participating in the meeting can hear each other during the meeting. Participation by such means shall constitute presence in person at a meeting.

3.7 Notice of Special Meetings

Notice of a special Board or committee meeting stating the place, day and hour of the meeting shall be given to a Director in writing or orally. Neither the business to be transacted at, nor the purpose of, any special meeting need be specified in the notice of such meeting.

3.7.1 Personal Delivery

If notice is given by personal delivery, the notice shall be effective if delivered to a Director at least two days before the meeting.

3.7.2 Delivery by Mail

If notice is delivered by mail, the notice shall be deemed effective if deposited in the official government mail at least five days before the meeting, properly addressed to a Director at his or her address shown on the records of the corporation, with postage thereon prepaid.

3.7.3 Delivery by Private Carrier

If notice is given by private carrier, the notice shall be deemed effective when dispatched to a Director at his or her address shown on the records of the corporation at least three days before the meeting.

3.7.4 Facsimile Notice

If notice is delivered by wire or wireless equipment which transmits a facsimile of the notice, the notice shall be deemed effective when dispatched at least two days before the meeting to a Director at his or her telephone number or other number appearing on the records of the corporation.

3.7.5 Oral Notice

If notice is delivered orally, by telephone or in person, the notice shall be deemed effective if personally given to the Director at least two days before the meeting.

3.8 Waiver of Notice

3.8.1 In Writing

Whenever any notice is required to be given to any Director under the provisions of these Bylaws, the Articles of Incorporation or the Washington Business Corporation Act, a waiver thereof in writing, signed by the person or persons entitled to such notice and delivered to the corporation, whether before or after the date and time of the meeting, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board or any committee designated by the Board need be specified in the waiver of notice of such meeting.

3.8.2 By Attendance

A Director's attendance at or participation in a Board or committee meeting shall constitute a waiver of notice of such meeting, unless the Director at the beginning of the meeting, or promptly upon his or her arrival, objects to holding the meeting or transacting business at such meeting and does not thereafter vote for or assent to action taken at the meeting.

3.9 Quorum

A majority of the number of Directors fixed by or in the manner provided in these Bylaws shall constitute a quorum for the transaction of business at any Board meeting but, if less than a majority are present at a meeting, a majority of the Directors present may adjourn the meeting from time to time without further notice.

3.10 Manner of Acting

If a quorum is present when the vote is taken, the act of the majority of the Directors present at a Board meeting shall be the act of the Board, unless the vote of a greater number is required by these Bylaws, the Articles of Incorporation or the Washington Business Corporation Act.

3.11 Presumption of Assent

A Director of the corporation who is present at a Board or committee meeting at which any action is taken shall be deemed to have assented to the action taken unless (a) the Director objects at the beginning of the meeting, or promptly upon the Director's arrival, to holding the meeting or transacting any business at such meeting, (b) the Director's dissent or abstention from the action taken is entered in the minutes of the meeting, or (c) the Director delivers written notice of the Director's dissent or abstention to the presiding officer of the meeting before its adjournment or to the corporation within a reasonable time after adjournment of the meeting. The right of dissent or abstention is not available to a Director who votes in favor of the action taken.

3.12 Action by Board or Committees Without a Meeting

Any action which could be taken at a meeting of the Board or of any committee created by the Board may be taken without a meeting if one or more written consents setting forth the action so taken are signed by each of the Directors or by each committee member either before or after the action is taken and delivered to the corporation. Action taken by written consent of Directors without a meeting is effective when the last Director signs the consent, unless the consent specifies a later effective date. Any such written consent shall be inserted in the minute book as if it were the minutes of a Board or a committee meeting.

3.13 Resignation

Any Director may resign at any time by delivering written notice to the Chairman of the Board, the President, the Secretary or the Board. Any such resignation is effective upon delivery thereof unless the notice of resignation specifies a later effective date and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

3.14 Removal

Any Director or the entire Board may be removed for cause by the holders of not less than two-thirds of the shares entitled to elect the Director or Directors whose removal is sought. Such action may only be taken at a special meeting of the shareholders called expressly for that purpose, providing that notice of the proposed removal, which shall include a statement of the charges alleged against the Director, shall have been duly given to the shareholders together with or as a part of the notice of the meeting.

Where a question of the removal of a Director for cause is to be presented for shareholder consideration, an opportunity must be provided to such Director to present his or her defense to the shareholders by a statement which must accompany or precede the notice of the special meeting of shareholders or, if provided to shareholders prior to the notice of the special meeting, the initial solicitation of proxies seeking authority to vote for the removal of such Director for cause. If not provided, then such proxies may not be voted for removal. The Director involved shall be served with notice of the meeting at which such action is proposed to be taken together with a statement of the specific charges and shall be given an opportunity to be present and to be heard at the meeting at which his or her removal is considered.

The vacancy created by the removal of a Director under this Section 3.14 shall be filled only by a vote of the holders of two-thirds of the shares then entitled to elect the Director removed. Such vote may be taken at the same meeting at which the removal of such Director was accomplished, or at such later meeting, regular or special, as the shareholders may decide.

3.15 Vacancies

Subject to the provisions of Section 3.14 hereof and unless the Articles of Incorporation provide otherwise, any vacancy occurring on the Board may be filled by the shareholders, the Board or, if the Directors in office constitute fewer than a quorum, by the affirmative vote of a majority of the remaining Directors. Any vacant office held by a Director elected by the holders of one or more classes or series of shares entitled to vote and be counted collectively thereon shall be filled only by the vote of the holders of such class or series of shares. A Director elected to fill a vacancy shall serve only until the next election of Directors by the shareholders.

3.16 Executive and Other Committees

3.16.1 Creation of Committees

The Board, by resolution adopted by the greater of a majority of the Directors then in office and the number of Directors required to take action in accordance with these Bylaws, may create standing or temporary committees, including an Executive Committee, and appoint members thereto from its own number and invest such committees with such powers as it may see fit, subject to such conditions as may be prescribed by the Board, these Bylaws and applicable law. Each committee must have two or more members, who shall serve at the pleasure of the Board.

3.16.2 Authority of Committees

Each committee shall have and may exercise all of the authority of the Board to the extent provided in the resolution of the Board creating the committee and any subsequent resolutions pertaining thereto and adopted in like manner, except that no such committee shall have the authority to: (a) authorize or approve a distribution except according to a general formula or method prescribed by the Board, (b) approve or propose to shareholders actions or proposals required by the Washington Business Corporation Act to be approved by shareholders, (c) fill vacancies on the Board or any committee thereof, (d) adopt, amend or repeal Bylaws, (e) amend the Articles of Incorporation pursuant to RCW 23B.10.020, (f) approve a plan of merger not requiring shareholder approval, or (g) authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences and limitations of a class or series of shares except that the Board may authorize a committee or a senior executive officer of the corporation to do so within limits specifically prescribed by the Board.

3.16.3 Audit Committee

In addition to any committees appointed pursuant to this Section 3.16, there shall be an Audit Committee, appointed annually by the Board, consisting of at least two Directors who are not members of management. It shall be the responsibility of the Audit Committee to review the scope and results of the annual independent audit of books and records of the corporation, to review compliance with all corporate policies which have been approved by the Board and to discharge such other responsibilities as may from time to time be assigned to it by the Board. The Audit Committee shall meet at such times and places as the members deem advisable, and shall make such recommendations to the Board as they consider appropriate.

3.16.4 Quorum and Manner of Acting

A majority of the number of Directors composing any committee of the Board, as established and fixed by resolution of the Board, shall constitute a quorum for the transaction of business at any meeting of such committee but, if less than a majority are present at a meeting, a majority of such Directors present may adjourn the meeting from time to time without further notice. Except as may be otherwise provided in the Washington Business Corporation Act, if a quorum is present when the vote is taken the act of a majority of the members present shall be the act of the committee.

3.16.5 Minutes of Meetings

All committees shall keep regular minutes of their meetings and shall cause them to be recorded in books kept for that purpose.

3.16.6 Resignation

Any member of any committee may resign at any time by delivering written notice thereof to the Chairman of the Board, the President, the Secretary or the Board. Any such resignation is effective upon delivery thereof, unless the notice of resignation specifies a later effective date, and the acceptance of such resignation shall not be necessary to make it effective.

3.16.7 Removal

The Board may remove any member of any committee elected or appointed by it but only by the affirmative vote of the greater of a majority of the Directors then in office and the number of Directors required to take action in accordance with these Bylaws.

3.17 Compensation

By Board resolution, Directors and committee members may be paid their expenses, if any, of attendance at each Board or committee meeting, or a fixed sum for attendance at each Board or committee meeting, or a stated salary as Director or a committee member, or a combination of the foregoing. No such payment shall preclude any Director or committee member from serving the corporation in any other capacity and receiving compensation therefor.

Section 4. OFFICERS

4.1 Appointment and Term

The officers of the corporation shall be those officers appointed from time to time by the Board or by any other officer empowered to do so. The Board shall have sole power and authority to appoint executive officers. As used herein, the term "executive officer" shall mean the President, any Vice President in charge of a principal business unit, division or function or any other officer who performs a policy-making function. The Board or the President may appoint such other officers and assistant officers to hold office for such period, have such authority and perform such duties as may be prescribed. The Board may delegate to any other officer the power to appoint any subordinate officers and to prescribe their respective terms of office, authority and duties. Any two or more offices may be held by the same person. Unless an officer dies, resigns or is removed from office, he or she shall hold office until his or her successor is appointed.

4.2 Resignation

Any officer may resign at any time by delivering written notice thereof to the corporation. Any such resignation is effective upon delivery thereof, unless the notice of resignation specifies a later effective date, and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

4.3 Removal

Any officer may be removed by the Board at any time, with or without cause. An officer or assistant officer, if appointed by another officer, may be removed by any officer authorized to appoint officers or assistant officers.

4.4 Contract Rights of Officers

The appointment of an officer does not itself create contract rights.

4.5 Chairman of the Board

If appointed, the Chairman of the Board shall perform such duties as shall be assigned to him or her by the Board from time to time and shall preside over meetings of the Board and shareholders unless another officer is appointed or designated by the Board as Chairman of such meetings.

4.6 President

If appointed, the President shall be the chief executive officer of the corporation unless another officer is so designated by the Board, shall preside over meetings of the Board and shareholders in the absence of a Chairman of the Board, and, subject to the Board's control, shall supervise and control all of the assets, business and affairs of the corporation. In general, the President shall perform all duties incident to the office of President and such other duties as are prescribed by the Board from time to time. If no Secretary has been appointed, the President shall have responsibility for the preparation of minutes of meetings of the Board and shareholders and for authentication of the records of the corporation.

4.7 Vice President

In the event of the death of the President or his or her inability to act, the Vice President (or if there is more than one Vice President, the Vice President who was designated by the Board as the successor to the President, or if no Vice President is so designated, the Vice President first elected to such office) shall perform the duties of the President, except as may be limited by resolution of the Board, with all the powers of and subject to all the restrictions upon the President. Vice Presidents shall perform such other duties as from time to time may be assigned to them by the President or by or at the direction of the Board.

4.8 Secretary

If appointed, the Secretary shall be responsible for preparation of minutes of the meetings of the Board and shareholders, maintenance of the corporation's records and stock registers and authentication of the corporation's records and shall in general perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him or her by the President or by or at the direction of the Board. In the absence of the Secretary, an Assistant Secretary may perform the duties of the Secretary.

4.9 Treasurer

If appointed, the Treasurer shall have charge and custody of and be responsible for all funds and securities of the corporation, receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in banks, trust companies or other depositories selected in accordance with the provisions of these Bylaws, and in general perform all of the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him or her by the President or by or at the direction of the Board. In the absence of the Treasurer, an Assistant Treasurer may perform the duties of the Treasurer. If required by the Board, the Treasurer or any Assistant Treasurer shall give a bond for the faithful discharge of his or her duties in such amount and with such surety or sureties as the Board shall determine.

4.10 Salaries

The salaries of the officers shall be fixed from time to time by the Board or by any person or persons to whom the Board has delegated such authority. No officer shall be prevented from receiving such salary by reason of the fact that he or she is also a Director of the corporation.

Section 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS

5.1 Contracts

The Board may authorize any officer or officers, or agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation. Such authority may be general or confined to specific instances.

5.2 Loans to the Corporation

No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board. Such authority may be general or confined to specific instances.

5.3 Checks and Drafts

All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, or agent or agents, of the corporation and in such manner as is from time to time determined by resolution of the Board.

5.4 Deposits

All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositories as the Board may select.

Section 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER

6.1 Issuance of Shares

No shares of the corporation shall be issued unless authorized by the Board, or by a committee designated by the Board to the extent such committee is empowered to do so.

6.2 Certificates for Shares

Certificates representing shares of the corporation shall be signed, either manually or in facsimile, by the President or any Vice President and by the Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary and shall include on their face written notice of any restrictions which may be imposed on the transferability of such shares. All certificates shall be consecutively numbered or otherwise identified.

6.3 Stock Records

The stock transfer books shall be kept at the principal office of the corporation or at the office of the corporation's transfer agent or registrar. The name and address of each person to whom certificates for shares are issued, together with the class and number of shares represented by each such certificate and the date of issue thereof, shall be entered on the stock transfer books of the corporation. The person in whose name shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes.

6.4 Transfer of Shares

The transfer of shares of the corporation shall be made only on the stock transfer books of the corporation pursuant to authorization or document of transfer made by the holder of record thereof or by his or her legal representative, who shall furnish proper evidence of authority to transfer, or by his or her attorney-in-fact authorized by power of attorney duly executed and filed with the Secretary of the corporation. All certificates surrendered to the corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificates for a like number of shares shall have been surrendered and cancelled.

6.5 Lost or Destroyed Certificates

In the case of a lost, destroyed or mutilated certificate, a new certificate may be issued therefor upon such terms and indemnity to the corporation as the Board may prescribe.

Section 7. BOOKS AND RECORDS

The corporation shall:

(a) Keep as permanent records minutes of all meetings of its shareholders and the Board, a record of all actions taken by the shareholders or the Board without a meeting, and a record of all actions taken by a committee of the Board exercising the authority of the Board on behalf of the corporation.

(b) Maintain appropriate accounting records.

(c) Maintain a record of its shareholders, in a form that permits preparation of a list of the names and addresses of all shareholders, in alphabetical order by class of shares showing the number and class of shares held by each; provided, however, such record may be maintained by an agent of the corporation.

(d) Maintain its records in written form or in another form capable of conversion into written form within a reasonable time.

(e) Keep a copy of the following records at its principal office:

1. the Articles of Incorporation and all amendments thereto as currently in effect;

2. the Bylaws and all amendments thereto as currently in effect;

3. the minutes of all meetings of shareholders and records of all action taken by shareholders without a meeting, for the past three years;

4. the financial statements described in RCW 23B.16.200(1) for the past three years;

5. all written communications to shareholders generally within the past three years;

6. a list of the names and business addresses of the current Directors and officers; and

7. the most recent annual report delivered to the Washington Secretary of State.

Section 8. ACCOUNTING YEAR

The accounting year of the corporation shall be the calendar year, provided that if a different accounting year is at any time selected by the Board for purposes of federal income taxes, or any other purpose, the accounting year shall be the year so selected.

Section 9. SEAL

The Board may provide for a corporate seal which shall consist of the name of the corporation, the state of its incorporation and the year of its incorporation.

Section 10. INDEMNIFICATION

10.1 Right to Indemnification

Each person who was, is or is threatened to be made a named party to or is otherwise involved (including, without limitation, as a witness) in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal (hereinafter a "proceeding"), by reason of the fact that he or she is or was a Director or officer of the corporation or, that being or having been such a Director or officer or an employee of the corporation, he or she is or was serving at the request of the corporation as a Director, officer, partner, trustee, employee or agent of another corporation or of a partnership, joint venture, trust, employee benefit plan or other enterprise (hereinafter an "indemnitee"), whether the basis of a proceeding is alleged action in an official capacity as such a Director, officer, partner, trustee, employee or agent or in any other capacity while serving as such a Director, officer, partner, trustee, employee or agent, shall be indemnified and held harmless by the corporation against all expense, liability and loss (including counsel fees, judgments, fines, ERISA excise taxes or penalties and amounts to be paid in settlement) actually and reasonably incurred or suffered by such indemnitee in connection therewith, and such indemnification shall continue as to an indemnitee who has ceased to be a Director, officer, partner, trustee, employee or agent and shall inure to the benefit of the indemnitee's heirs, executors and administrators. Except as provided in subsection 10.2 of this Section with respect to proceedings seeking to enforce rights to indemnification, the corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if a proceeding (or part thereof) was authorized or ratified by the Board. The right to indemnification conferred in this Section shall be a contract right.

10.2 Restrictions on Indemnification

No indemnification shall be provided to any such indemnitee for acts or omissions of the indemnitee finally adjudged to be intentional misconduct or a knowing violation of law, for conduct of the indemnitee finally adjudged to be in violation of RCW 23B.08.310, for any transaction with respect to which it was finally adjudged that such indemnitee personally received a benefit in money, property or services to which the indemnitee was not legally entitled or if the corporation is otherwise prohibited by applicable law from paying such indemnification. Notwithstanding the foregoing, if RCW 23B.08.560 or any successor provision of the Washington Business Corporation Act is hereafter amended, the restrictions on indemnification set forth in this subsection 10.2 shall be as set forth in such amended statutory provision.

10.3 Advancement of Expenses

The right to indemnification conferred in this Section shall include the right to be paid by the corporation the expenses incurred in defending any proceeding in advance of its final disposition (hereinafter an "advancement of expenses"). An advancement of expenses shall be made upon delivery to the corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such indemnitee is not entitled to be indemnified for such expenses under this subsection 10.3.

10.4 Right of Indemnitee to Bring Suit

If a claim under subsection 10.1 or 10.3 of this Section is not paid in full by the corporation within sixty days after a written claim has been received by the corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty days, the indemnitee may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim. If successful in whole or in part, in any such suit or in a suit brought by the corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. The indemnitee shall be presumed to be entitled to indemnification under this Section upon submission of a written claim (and, in an action brought to enforce a claim for an advancement of expenses, where the required undertaking has been tendered to the corporation) and thereafter the corporation shall have the burden of proof to overcome the presumption that the indemnitee is so entitled.

10.5 Procedures Exclusive

Pursuant to RCW 23B.08.560(2) or any successor provision of the Washington Business Corporation Act, the procedures for indemnification and advancement of expenses set forth in this Section are in lieu of the procedures required by RCW 23B.08.550 or any successor provision of the Washington Business Corporation Act.

10.6 Nonexclusivity of Rights

The right to indemnification and the advancement of expenses conferred in this Section shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Articles of Incorporation or Bylaws of the corporation, general or specific action of the Board, contract or otherwise.

10.7 Insurance, Contracts and Funding

The corporation may maintain insurance, at its expense, to protect itself and any Director, officer, partner, trustee, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the Washington Business Corporation Act. The corporation may enter into contracts with any Director, officer, partner, trustee, employee or agent of the corporation in furtherance of the provisions of this Section and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification as provided in this Section.

10.8 Indemnification of Employees and Agents of the Corporation

The corporation may, by action of the Board, grant rights to indemnification and advancement of expenses to employees and agents or any class or group of employees and agents of the corporation (a) with the same scope and effect as the provisions of this Section with respect to the indemnification and advancement of expenses of Directors and officers of the corporation; (b) pursuant to rights granted pursuant to, or provided by, the Washington Business Corporation Act; or (c) as are otherwise consistent with law.

10.9 Persons Serving Other Entities

Any person who, while a Director, officer or employee of the corporation, is or was serving as a Director or officer of another foreign or domestic corporation of which a majority of the shares entitled to vote in the election of its Directors is held by the corporation shall be deemed to be so serving at the request of the corporation and entitled to indemnification and advancement of expenses under subsections 10.1 and 10.3 of this Section.

Section 11. AMENDMENTS

The Board shall have the power to adopt, amend or repeal the Bylaws of this corporation subject to approval by a majority of the Continuing Directors as defined in the Articles of Incorporation; provided, however, the Board may not repeal or amend any bylaw that the shareholders have expressly provided may not be amended or repealed by the Board. The shareholders shall also have the power to adopt, amend or repeal the Bylaws of this corporation by the affirmative vote of the holders of not less than two-thirds of the outstanding shares and, to the extent, if any, provided by resolution or resolutions of the Board providing for the issue of a series of Common or Preferred Stock, not less than two-thirds of the outstanding shares entitled to vote thereon, voting as a class.

* * * * *

The foregoing Amended and Restated Bylaws were adopted by the Board on October 17, 1996 and are effective as of October 17, 1996.

Exhibit 10.1

AMPLIPHI BIOSCIENCES CORPORATION

CONSULTING AGREEMENT

This Consulting Agreement (this “ Agreement ”) is entered into by and between AmpliPhi Biosciences Corporation, a Washington corporation (the “ Company ”), and Wendy S. Johnson (“ Consultant ”), on September 3, 2015 (the “ Execution Date ”), and shall be deemed to be effective as of July 1, 2015 (the “ Effective Date ”). The Company and Consultant previously entered into that certain Interim Chief Operating Officer Agreement, dated September 18, 2014, as amended on January 15, 2015 (the “ Prior Consulting Agreement ”), and desire for this Agreement to set forth the parties’ rights and obligations with respect to Consultant’s provision of services to the Company as a consultant in lieu of the Prior Consulting Agreement, effective on the Effective Date. In consideration of the mutual promises contained herein, the parties agree as follows:

1. Services and Compensation . Consultant agrees to perform for the Company the services described in Exhibit A (the “ Services ”), and the Company agrees to pay Consultant the compensation described in Exhibit A for Consultant’s performance of the Services.

2. Confidentiality .

(a) Definition . “ Confidential Information ” means any and all information and materials, in whatever form, tangible or intangible, whether disclosed to or learned or developed by Consultant before or after the execution of this Agreement, whether or not marked or identified as confidential or proprietary, pertaining in any manner to the business of or used by the Company and its affiliates, or pertaining in any manner to any person or entity to whom the Company owes a duty of confidentiality. Confidential Information includes, but is not limited to, the following types of information and materials: (i) trade secrets, inventions, ideas, processes, formulas, algorithms, pre-clinical and clinical data, formulations, programs, other works of authorship, know-how, improvements, discoveries, developments, designs and techniques; (ii) information regarding plans for research, development, new products, marketing and selling, business plans, business methods, budgets and unpublished financial statements, licenses, prices and costs, suppliers and customers; (iii) sensitive personnel information including the skills and compensation of other employees of the Company; and (iv) any other information or materials relating to the past, present, planned or foreseeable business, products, developments, technology or activities of the Company. Consultant understands that Confidential Information includes, but is not limited to, information pertaining to any aspect of the Company’s business which is either information not known by actual or potential competitors of the Company or other third parties not under confidentiality obligations to the Company, or is otherwise proprietary information of the Company or its customers or suppliers, whether of a technical nature or otherwise. Consultant further understands that Confidential Information does not include any of the foregoing items which has become publicly and widely known and made generally available through no wrongful act of Consultant or of others who were under confidentiality obligations as to the item or items involved.

(b) Nonuse and Nondisclosure . Consultant will not, during or subsequent to the term of this Agreement, (i) use the Confidential Information for any purpose whatsoever other than the performance of the Services on behalf of the Company or (ii) disclose the Confidential Information to any third party except as reasonably required to perform the Services and under appropriate confidentiality agreements. Consultant agrees that all Confidential Information will remain the sole property of the Company. Consultant also agrees to take all reasonable precautions to prevent any unauthorized disclosure of such Confidential Information.

(c) Former Client Confidential Information . Consultant agrees that Consultant will not, during the term of this Agreement, improperly use or disclose any proprietary information or trade secrets of any former or current employer of Consultant or other person or entity with which Consultant has an agreement or duty to keep in confidence information acquired by Consultant, if any. Consultant also agrees that Consultant will not bring onto the Company’s premises any unpublished document or proprietary information belonging to any such employer, person or entity unless consented to in writing by such employer, person or entity.

(d) Third Party Confidential Information . Consultant recognizes that the Company has received and in the future will receive from third parties their confidential or proprietary information subject to a duty on the Company’s part to maintain the confidentiality of such information and to use it only for certain limited purposes. Consultant agrees that, during the term of this Agreement and thereafter, Consultant owes the Company and such third parties a duty to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out the Services for the Company consistent with the Company’s agreement with such third party.

(e) Return of Materials . Upon the termination of this Agreement, or upon Company’s earlier request, Consultant will deliver to the Company all of the Company’s property, including but not limited to all electronically stored information and passwords to access such property, or Confidential Information that Consultant may have in Consultant’s possession or control.

3. Ownership .

(a) Assignment . Consultant agrees that all inventions (whether or not patentable), copyrightable material, notes, records, drawings, designs, improvements, developments, discoveries and trade secrets conceived, discovered, developed or reduced to practice by Consultant, solely or in collaboration with others, during the term of this Agreement that relate in any manner to the business of the Company that Consultant may be directed to undertake, investigate or experiment with or that Consultant may become associated with in work, investigation or experimentation in the Company’s line of business in performing the Services under this Agreement (collectively, “Inventions” ), are the sole property of the Company. Consultant also agrees to assign (or cause to be assigned) and hereby assigns fully to the Company all Inventions and any copyrights, patents, mask work rights or other intellectual property rights relating to all Inventions.

(b) Further Assurances . Consultant agrees to assist Company, or its designee, at the Company’s expense, in every proper way to secure the Company’s rights in Inventions and any copyrights, patents, mask work rights or other intellectual property rights relating to all Inventions in any and all countries, including the disclosure to the Company of all pertinent information and data with respect to all Inventions, the execution of all applications, specifications, oaths, assignments and all other instruments that the Company may deem necessary in order to apply for and obtain such rights and in order to assign and convey to the Company, its successors, assigns and nominees the sole and exclusive right, title and interest in and to all Inventions, and any copyrights, patents, mask work rights or other intellectual property rights relating to all Inventions. Consultant also agrees that Consultant’s obligation to execute or cause to be executed any such instrument or papers shall continue after the termination of this Agreement.

(c) Pre-Existing Materials . Attached as Exhibit B is a list describing with particularity all inventions, improvements, developments, concepts, discoveries or other proprietary information which were (i) made by Consultant prior to becoming a consultant to the Company and (ii) could reasonably be deemed to be in or related to the business of the Company (collectively referred to as “Prior Inventions” ), which belong solely to Consultant or belong to Consultant jointly with another, which relate in any way to any of the Company’s proposed businesses, products or research and development, and which are not assigned to the Company hereunder; or, if no such list is attached, Consultant represents that there are no such Prior Inventions. Subject to Section 3(a), Consultant agrees that if, in the course of performing the Services, Consultant incorporates into any Invention developed under this Agreement any Prior Invention owned by Consultant or in which Consultant has an interest, (i) Consultant will inform Company, in writing before incorporating such Prior Invention into any Invention, and (ii) the Company is hereby granted a nonexclusive, royalty-free, perpetual, irrevocable, worldwide license to make, have made, modify, use and sell such Prior Invention as part of or in connection with such Invention. Consultant will not incorporate any invention, improvement, development, concept, discovery or other proprietary information owned by any third party into any Invention without Company’s prior written permission.

(d) Attorney-in-Fact . Consultant agrees that, if the Company is unable because of Consultant’s unavailability, dissolution, mental or physical incapacity, or for any other reason, to secure Consultant’s signature for the purpose of applying for or pursuing any application for any United States or foreign patents or mask work or copyright registrations covering the Inventions assigned to the Company in Section 3(a), then Consultant hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as Consultant’s agent and attorney-in-fact, to act for and on Consultant’s behalf to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of patents, copyright and mask work registrations with the same legal force and effect as if executed by Consultant.

4. Conflicting Obligations . Consultant certifies that Consultant has no outstanding agreement or obligation that is in conflict with any of the provisions of this Agreement or that would preclude Consultant from complying with the provisions of this Agreement. Consultant will not enter into any such conflicting agreement during the term of this Agreement. Consultant’s violation of this Section 4 will be considered a breach of a material provision of this Agreement under Section 6(b)(i)(1).

5. Reports . Consultant also agrees that Consultant will, from time to time during the term of this Agreement or any extension thereof, keep the Company advised as to Consultant’s progress in performing the Services under this Agreement. Consultant further agrees that Consultant will, as requested by the Company, prepare written reports with respect to such progress.

6. Term and Termination .

(a) Term . This Agreement is effective as of the Effective Date and will terminate on the earlier of (i) July 1, 2016 or (ii) termination as provided in Section 6(b) below. The term of this Agreement may be extended upon mutual written agreement of the parties.

(b) Termination .

(i)

Termination by the Company .

(1) For Cause . The Company may terminate this Agreement immediately and without prior notice if Consultant refuses to or is unable to perform the Services or is in breach of any material provision of this Agreement. Such right to terminate this Agreement for cause shall be in addition to any other remedies available to the Company at law or in equity.

(2) Without Cause . The Company may terminate this Agreement for any reason, or no reason, upon at least 90 days’ prior written notice to Consultant; provided, however, in no event may the effective date of any termination pursuant to this Section 6(b)(i)(2) occur before March 31, 2016.

(ii)

T ermination by Consultant.

(1) For Cause . Consultant may terminate this Agreement upon written notice to the Company if the Company is in breach of any material provision of this Agreement and does not cure the breach within thirty (30) days following receipt of written notice thereof from Consultant. Such right to terminate this Agreement for cause shall be in addition to any other remedies available to Consultant at law or in equity.

(2) Without Cause . Consultant may terminate this Agreement for any reason, or no reason, upon at least 45 days’ prior written notice to the Company.

(c) Survival . Upon such termination, all rights and duties of the Company and Consultant toward each other shall cease except:

(i) The Company will pay, within 30 days after the effective date of termination, all amounts owing to Consultant for Services completed and accepted by the Company prior to the termination date and related expenses, if any, submitted in accordance with the Company’s policies and in accordance with the provisions of Section 1 of this Agreement; and

(ii) Section 2 (Confidentiality), Section 3 (Ownership), Section 6 (Term and Termination—Survival), Section 7 (Independent Contractor; Benefits) and Section 9 (Miscellaneous) will survive termination of this Agreement.

7. Independent Contractor; Benefits .

(a) Independent Contractor . It is the express intention of the Company and Consultant that Consultant perform the Services as an independent contractor to the Company. Nothing in this Agreement shall in any way be construed to constitute Consultant as an employee of the Company. Consultant agrees to furnish (or reimburse the Company for) all tools and materials necessary to accomplish this Agreement and shall incur all expenses associated with performance, except as expressly provided in Exhibit A . Consultant acknowledges and agrees that Consultant is obligated to report as income all compensation received by Consultant pursuant to this Agreement. Consultant agrees to and acknowledges the obligation to pay all self-employment and other taxes on such income.

(b) Benefits . The Company and Consultant agree that Consultant will receive no Company-sponsored benefits from the Company. If Consultant is reclassified by a state or federal agency or court as Company’s employee, Consultant will become a reclassified employee and will receive no benefits from the Company, except those mandated by state or federal law, even if by the terms of the Company’s benefit plans or programs of the Company in effect at the time of such reclassification, Consultant would otherwise be eligible for such benefits.

8. Indemnification Agreement . The Company and Consultant acknowledge that the Company and Consultant have entered into that certain Indemnification Agreement, dated June 1, 2014 (the “ Indemnification Agreement ”), and that nothing herein is intended to limit or modify the parties’ rights or obligations under the Indemnification Agreement.

9. Miscellaneous .

(a) Governing Law . This Agreement shall be governed by the laws of the Commonwealth of Virginia without regard to conflicts of law rules.

(b) Assignability . Consultant may not sell, assign or delegate any rights or obligations under this Agreement without the express prior written consent of the Company. The Company may assign (i) this Agreement to a Company affiliate or (ii) this Agreement in the event of a merger, acquisition or sale of all or substantially all of the assets of the Company. Subject to the foregoing, this Agreement will be binding upon and inure to the benefit of the parties hereto, their successors and assigns. Any attempted assignment in violation of this provision will be null and void.

(c) Entire Agreement . This Agreement and the Indemnification Agreement constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and supersede all prior written and oral agreements between the parties regarding the subject matter hereof and thereof. The Company and Consultant hereby agree that the Prior Consulting Agreement shall be deemed to have been in continuous effect from the effective date thereof to the Effective Date. Effective on the Effective Date, the Prior Consulting Agreement is hereby terminated and of no further force or effect; provided, however , nothing in the foregoing will relieve either party of any obligations accrued under the Prior Consulting Agreement prior to the Effective Date, nor will it affect the survival of any provision intended to survive the termination of the Prior Consulting Agreement.

(d) Headings . Headings are used in this Agreement for reference only and shall not be considered when interpreting this Agreement.

(e) Notices . Any notice or other communication required or permitted by this Agreement must be in writing and must be (i) mailed by nationally recognized overnight courier, with written verification of delivery, (ii) sent by email or facsimile, or (iii) delivered by hand to the party to whom such notice is required or permitted to be given. If mailed by overnight courier, any such communication will be considered to have been given one (1) business day after it was mailed, as evidenced by written verification from such courier. If delivered by email or facsimile, any such communication will be considered to have been given on the day of its transmission if sent during normal business hours of the recipient, and if not during normal business hours of the recipient, then on the next business day. If delivered by hand, any such communication will be considered to have been given when received by the party to whom notice is given, as evidenced by written and dated receipt of the receiving party. The mailing address, email address and facsimile number for notice to either party will be as shown on the signature page of this Agreement. Either party may change its mailing address, email address or facsimile number by notice as provided by this Section 9(e).

(f) Attorneys’ Fees . In any court action at law or equity that is brought by one of the parties to this Agreement to enforce or interpret the provisions of this Agreement, the prevailing party will be entitled to reasonable attorneys’ fees, in addition to any other relief to which that party may be entitled.

(g) Severability . If any provision of this Agreement is found to be illegal or unenforceable, the other provisions shall remain effective and enforceable to the greatest extent permitted by law.

(h) Amendments . This Agreement may be amended or waived only upon written consent of the Consultant and the Company.

(i) Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.

[ Remainder of page intentionally left blank .]

IN WITNESS WHEREOF, the parties hereto have executed this Consulting Agreement as of the date first written above.

AmpliPhi Biosciences Corporation

By:	/s/ Michael Scott Salka
Name:	Michael Scott Salka
Title:	Chief Executive Officer

Address:



Email:	mss@ampliphibio.com

Consultant

By:	/s/ Wendy S. Johnson
	Wendy S. Johnson

Address:



Email:	Wendy@geminiwest.net

EXHIBIT A

SERVICES AND COMPENSATION

1. Services . Consultant shall serve as the interim Chief Operating Officer of the Company and shall perform the duties, and have the responsibilities, that are customary for persons serving in such office. Consultant will provide the Services on an as-needed basis during the term of the Agreement, subject to a minimum commitment of 120 hours per month (the “ Minimum Services ”).

Consultant will report to the Chief Executive Officer of the Company.

2. Compensation .

Monthly Fees:

The Company will pay Consultant a monthly fee of $25,000 for Services performed during the term of the Agreement, subject to proration on an hourly basis in the event Consultant does not provide the Minimum Services for any calendar month. The monthly fees will be payable in arrears, subject to Consultant complying with Consultant's obligation to submit invoices as described below. The Company’s payment obligations for Services performed by Consultant during the term of the Agreement will be net of any compensatory payments made by the Company to Consultant as of the Execution Date.

The Company will reimburse Consultant for reasonable travel and other business expenses incurred by Consultant in the performance of her duties, consistent with the Company’s reimbursement policies. Consultant will provide receipts to the Company documenting such expenses.

Consultant agrees to provide the Company with an invoice for fees and expenses due in respect of the Services supplied on the 1 ^st day of each month, commencing October 1, 2015. The Company agrees to pay each such invoice within 30 days of it being received and approved.

Additional Cash Payment:

The Company will pay Consultant the applicable cash payment(s) specified below upon the achievement of the applicable milestone(s), in each case, subject to the Agreement remaining in effect as of the applicable milestone achievement date:

Milestone*	Cash Payment		Payment Timing
Milestone A: Dosing, on or before December 31, 2015, of the first patient in the first clinical trial initiated by the Company after the Effective Date.	$	175,000	Within 10 days following the achievement of Milestone A.
Milestone B: Dosing, after December 31, 2015 but before March 31, 2016, of the first patient in the first clinical trial initiated by the Company after the Effective Date.	$	75,000	Within 10 days following the achievement of Milestone B.
Milestone C: Dosing, before March 31, 2016, of the first patient in the second clinical trial initiated by the Company after the Effective Date, provided such second clinical trial and/or the first clinical trial contemplated by Milestones A and B above is conducted under a U.S. IND.	$	25,000	Within 10 days following the achievement of Milestone C.

* For clarity, Milestone A and Milestone B above will be mutually exclusive.

Option Grant:

Subject to approval by the Company’s Board of Directors (the “ Board ”) or an authorized committee thereof, Consultant will be granted, under the Company’s Stock Incentive Plan, a stock option to purchase a number of shares of common stock equal to 0.5% of the total number of outstanding shares of common stock of the Company on the Effective Date, which option will vest as follows:

A- 1

50% of the shares subject to the option will vest on an equal monthly basis over the 12 months following the Effective Date, subject, in each case, to the Agreement remaining in effect as of the applicable vesting date; and

50% of the shares subject to the option will vest upon the achievement of Milestone A or Milestone B above, subject to the Agreement remaining in effect as of the achievement of such milestone.

The per share exercise price of the option will be the fair market value of the Company’s common stock on the date of grant, as determined by the Board or an authorized committee thereof.

3. Other Engagements . Consultant may accept other consulting assignments, and engage in other business activities, so long as they do not interfere with her obligations under this Agreement.

A- 2

EXHIBIT B

LIST OF PRIOR INVENTIONS EXCLUDED UNDER SECTION 3(C)

Title

Date

Identifying Number

or Brief Description

No inventions or improvements

Additional Sheets Attached

Signature of Consultant:

/s/ Wendy S. Johnson

Print Name of Consultant:

Wendy S. Johnson

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael Scott Salka, certify that:

I have reviewed this quarterly report on Form 10-Q of AmpliPhi Biosciences Corporation;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 16, 2015

	/s/ Michael Scott Salka
	Michael Scott Salka
	Chief Executive Officer
	(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, David E. Bosher, certify that:

I have reviewed this quarterly report on Form 10-Q of AmpliPhi Biosciences Corporation;

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 16, 2015

	/s/ David E. Bosher
	David E. Bosher
	Chief Financial Officer
	(Principal Financial Officer)

Exhibit 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of AmpliPhi Biosciences Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2015 as filed with the Securities and Exchange Commission (the “Report”), I, Michael Scott Salka, Chief Executive Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1)

the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

Date: November 16, 2015

	/s/ Michael Scott Salka
	Michael Scott Salka
	Chief Executive Officer
	(Principal Executive Officer)

Exhibit 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of AmpliPhi Biosciences Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2015 as filed with the Securities and Exchange Commission (the “Report”), I, David E. Bosher, Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1)

the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

Date: November 16, 2015

	/s/ David E. Bosher
	David E. Bosher
	Chief Financial Officer
	(Principal Financial Officer)